Written evidence submitted by Philip Marcovici (Principal at The Offices of Philip Marcovici Limited)



Developing Global Britain and its Role as a  Forward Looking  Center for Responsible Wealth and Business Owners – and Immediate Revenue Raising Steps that Can be Taken




Executive Summary


This paper seeks to encourage the Government of the UK to consider taking steps to reform its tax system with a view to addressing the realities of income and wealth inequality while recognizing the important value to the UK of attracting and retaining wealth and business owners as citizens, residents and investors.


How individuals live and work has been changing and the basis on which wealth and business owners are taxed is, in the case of the UK, not fit for purpose if the UK were to be serious about achieving the benefits for its economy that it could achieve. The opportunity for the UK to emerge as the country of choice for global wealth and business owners is a very real one, particularly in a world of tax transparency where home governments are increasingly fully informed about the income and wealth of residents. Mobile wealth and business owners need to live in countries the governments of which can be trusted with information about their assets and where tax systems are fair, predictable and straight forward. Wealth and business owners living outside the UK need to invest in and through countries they can rely on and whose tax and legal systems encourage such activity.


The UK does not need to offer the lowest tax burdens globally to achieve success. The UK simply needs to rely on its existing strengths and to build on a long term strategy oriented towards collaboration with responsible wealth and business owners, reliance on the rule of law (and therefore certainty) and simplicity.


In setting out a vision for the future, this paper also suggests the creation of a Voluntary Coronavirus Alternative Tax for, primarily, existing and new residents of the UK. If this were carefully implemented, immediate meaningful revenues could be achieved as part of first steps taken towards the development of Global Britain as a the world’s premier center for responsible wealth and business owners. Part of the Voluntary Coronavirus Alternative Tax could, as elaborated on in this paper, include elements of wealth taxation, allowing the UK to experiment with wealth taxes through a voluntary system.


This paper sets out:


  1. An Introduction to the Author and Reasons for Submitting Evidence
  2. Longer Term Steps that Can be Taken to Develop Global Britain  as a  Forward Looking  Center  for Responsible Wealth and Business Owners
  3. A Possible Short-Term Step to Address the Need for Government Revenue in view of the Coronavirus Pandemic and a First Move Towards the UK Establishing a New Relationship with Wealth and Business Owners
  4. The Importance of Trust and Some Comments on Global Tax Systems




  1. Introduction to the Author and Reasons for Submitting Evidence


I am an international tax lawyer, now semi-retired, interested in contributing tax policy and related ideas to the  Government of the United Kingdom.


My motivation for submitting evidence is to help the UK address immediate revenue needs in response to dealing with the financial costs of Covid-19, and to do so in a manner that can be a first step towards developing a strategy that can place Global Britain in a leadership position in relation to capitalizing on the potential contributions to the UK and global economies of wealth and business owners.


I have been involved in a number of international tax policy related projects and among others was one of the architects and initiators of the Liechtenstein Disclosure Facility, which produced revenue yields for the United Kingdom of over £1.25 billion. The Liechtenstein Disclosure Facility was in place from 1 September, 2009 to 31 December, 2015. I developed the idea of the Liechtenstein Disclosure Facility as a means of addressing issues associated with undeclared funds, and the initiative was an important part of global moves towards addressing tax evasion and accelerating moves to transparency. I attracted the Liechtenstein government as my client in my work on the project, and developed good working relationships with HMRC, and particularly Dave Hartnett and Andy Cole, both now retired. My work on the Liechtenstein Disclosure Facility had the support of the OECD in Paris, with which I also maintain close relationships.


I am a UK national (born in Canada) and am admitted to practice law in England & Wales, New York, Hong Kong and British Columbia, Canada (the latter, retired). My CV is attached.



  1. Longer Term Steps that Can be Taken to Develop Global Britain and its Role as a  Forward Looking  Center  for Responsible Wealth and Business Owners



Taxation is, of course, a complex subject, particularly when dealing with the income and assets of global wealth and business owners whose businesses, holdings and places of residence almost always cross borders. Current tax systems, both in the UK and elsewhere, are simply not fit for purpose in a world of mobility and choice, and the UK, to thrive, will need to undertake radical tax reform.


Among others:






TWFR Part 2 Global Tax Transparency




With questions arising about how to pay for  costs associated with Covid -19 and encouraging better future responses to, among others, global health challenges,   climate change,  misguided governments that go their own way rather than cooperate and  gross inequality,  the time may be ripe to revisit the establishment of some form of global tax (not a worldwide tax like for U.S. citizens, but a tax for being a global citizen; with administration that is automatically global, perhaps through a post-Brexit UK led initiative).  And to keep it “simple”, as a starting point, this would be a “cross-border” assets tax – focused on  the information that is available under the Common Reporting Standard (“CRS”).


In 2019, there were Euros 10 trillion of assets that were reported under CRS. These represent cross-border assets – an assets tax of .10% of value would produce Euros 10 billion per year (and this excludes assets reported under the U.S. Foreign Account Tax Compliance Act (FATCA). For a wealth owner with, say, Euros 70 million of assets, a cross-border tax at 10 basis points of assets would cost US$70,000 per year. If this were a respected tax, carefully employed to save our world, maybe this would be a tax many would be happy to pay? And maybe words other than “tax” could better describe what is in effect a contribution towards our collective futures. While Euro 10 billion raised in my example may not be a massive figure, it is almost double the budget of the World Health Organization, 80% of the budget of which is covered by voluntary contributions by countries around the world, including the UK.


If the UK could be at the center of intiating and administering new ways of covering the costs of global organizations such as the WHO, savings to the UK would result while helping to build a true Global Britain that takes leadership on global issues.









These are only a few of many areas that I believe the UK can explore with a view to rapidly increasing revenues and carving an important global voice on behalf of  wealth and business owners.


I have purposely sought to set out my evidence in a non-technical way so as to encourage wider readership and consideration, but would be very pleased to be afforded an opportunity to expand on my thinking with more in the way of specifics.



  1. A Possible Short-Term Step to Address the Need for Government Revenue in view of the Coronavirus Pandemic and a First Move Towards the UK Establishing a New Relationship with Wealth and Business Owners



Like virtually all countries, the UK is facing an urgent need to raise revenue, and the call for evidence to which I am responding seeks to identify ways to ensure that the UK has a strong tax base that reflects changes in how people live and work and how businesses are conducted.


Longer term, there is much that can be done to develop the UK  as a global center for responsible wealth and business owners.  Tax simplification, broadening the tax base and many other reforms to the UK tax system can help achieve true economic success and address income and wealth inequality in collaboration with wealth and business owners.


But tax reform that is significant and meaningful takes time and there are many choices to be carefully considered. What the UK can do right now to generate both urgently needed revenue and take a first step towards the Britain I envision, would be to implement a simple, but carefully considered Voluntary Coronavirus Alternative Tax. (the “VCAT”).


How can this work?












Electing for the VCAT would be open to all existing UK tax residents and to those looking to establish UK tax residence or who have family members who are UK tax resident. Some may consider the VCAT as a longer term planning opportunity, allowing them to take up UK residence in future on the basis of tax certainty.


There are many wealth and business owners who at present monitor carefully the time they spend in the UK so as to avoid taxable residence. This lost revenue to the UK would be addressed by making it attractive to be tax resident in the UK. And for those electing non-domiciliary status in the UK, electing the VCAT would encourage remittances of income into the UK, an element of the overall objective to stimulate economic activity and investment.


The VCAT would not, except possibly in the area of how certain investment income is taxed, affect tax rates or rules in and around UK source income. The focus of the VCAT is on foreign source income, and on the application of inheritance tax. Because of possible differentials in tax rates on UK vs foreign source income, however, tax changes would be needed to encourage the creation of UK source investment income, something that can be part of a strategy designed to encourage the use of the UK as a wealth management center. Countries with territorial tax systems have such approaches, and these can be a reference point for the UK. This change can have meaningful benefit to the UK as any exemptions from current rates of tax on UK source investment income would encourage global wealth and business owners, not only those electing for the VCAT, to relocate their wealth from other financial centers, both offshore and mid-shore, to the UK. However, at the outset, only those electing for the VCAT, might benefit from VCAT tax rates on certain UK source passive income so as to encourage investment in the UK and discourage flows out of the UK to more tax favourable jurisdictions.


Taxpayer elects to be subject to the VCAT.


  1. Entry Charge


The upfront payment for electing the VCAT, which will only be a possibility for a limited time period, will be eight times the annual total VCAT that would have been payable had the VCAT applied in relation to the taxpayer for the 12 months preceding the VCAT application. See sample calculation below.


  1. Annual Wealth Tax


One component of the VCAT could be a wealth tax. As the VCAT is elective, this would be a voluntary experiment for the UK on wealth taxes and how they can work. The VCAT wealth tax is set at a rate of 0.1% of the net value of all global assets, with this figure declining as the volume of wealth declared increases.


The determination of what the global assets of the individual taxpayer are is undertaken using UK tax rules currently in place. However, the taxpayer, as part of the VCAT process can elect to have a broader range of assets be subject to the wealth tax. The advantage to the taxpayer of doing this is to gain the longer term protection of those assets from tax changes going forward. As an example, assets in trusts that may benefit or be influenced by an individual may not be considered to be the assets of the individual under a variety of circumstances under present UK tax rules. By voluntarily electing to subject those assets to the VCAT, the assets become, in effect, protected by the VCAT.


See sample calculation below on the annual wealth tax.


  1. Annual Income Tax


Under the VCAT, all usual UK taxes on income apply, except that in respect of non-UK source income and gains, the UK tax rate is capped at 5% with no foreign tax credits applying to preserve revenue for the UK and to ensure simplicity. Income and realized capital gains are taxed at the same rates. For the purposes of my example, I have used an 5% tax rate, envisioning that this would decline as the volume of income and realized capital gains increase. As noted above, certain UK source investment income would also be taxed at VCAT rates so as to encourage investment in the UK and discourage outflows.


The annual income tax applies to all income that would be considered to be income under current UK tax rules. For a resident, non-domiciliary electing for the system, foreign source income would also become part of the tax net, unlike the case for such a taxpayer who does not elect for the VCAT. However, no tax would arise on the remittance to the UK of foreign source income.


As mentioned above, the annual income tax would extend to income on assets the taxpayer chooses to add to the VCAT approach. There may be assets under the influence of the taxpayer – in trusts, insurance products, foundations and otherwise that under current UK tax rules are not considered to be owned by the individual. If these assets are added into the VCAT coverage, income tax applies to income and gains on those assets, as does the annual wealth tax.


  1. Inheritance and Gift Taxation


All current rules on gift taxation would apply in relation to assets subject to the VCAT – meaning that gifts made within seven years of death would not be taxable. On the inheritance tax, assets subject to VCAT would have the benefit of a cap of a set percentage of assets being subject to inheritance tax – and with the further benefit (which may well be how inheritance tax in the UK progresses) that only assets going to UK residents on death are subject to the tax. For my example, I have used a cap of 5%, envisioning that this rate would decline as the volume of assets subject to the tax increase.


  1. Sample Calculation of the VCAT and the Entry Charge








Taxpayer has two children, one living in the UK and one living outside the UK.


Calculation of VCAT:


  1. Wealth tax is £25,000 (0.1% of £25 million), but taxpayer can elect to pay £50,000 per year in wealth tax, which would provide certainty on other taxes and possible future changes, should she include the second pot of £25,000 not attributable to her under current tax rules. Total Annual VCAT wealth tax = £50,000.


  1. Income tax, as the VCAT applies to all assets elected to be covered, will be on the total income of £3,000,000 (the £2,500,000 of income and gains on the two pots of assets, and the £500,000 in other non-UK source income). At 5%, the tax will be £150,000.


  1. On death, assuming assets remain at the same value, if the two children are the sole beneficiaries of £50 million, and only one child is resident in the UK at death, the inheritance tax is capped at 5% of £25,000,000, or £1,250,000.


  1. The entry charge for the VCAT will be eight times the wealth and income taxes applying, and thereby eight times £200,000 in the example, or £1,600,000.



Why Would a Wealth or Business Owner Choose the VCAT?



Why Would the UK Offer the VCAT with its Low Tax Rates and Lifetime Assurances?





  1. The Importance of Trust and Some Comments on Global Tax Systems


I have oriented this  outline of some of my thinking towards longer term changes to the UK tax system that can address the many reasons the current UK tax system is not fit for purpose, particularly in today’s globalized economy and where wealth and business owners have many options as to where to live, work and pay tax. A collaborative approach by government, and one which recognizes the value of wealth and business owners to the economy and the needs of this community is critical to achieving the success I believe the UK can achieve.


Importantly, my response to the call for evidence reflects the urgent need for both government revenue and enhanced business and investment activity in view of the unprecedented economic fallout of the coronavirus pandemic.


It is not only in the case of the UK that the relationship between wealth and business owners and governments needs to change. Governments need to be clear in their commitment to attract and retain wealth and business owners to their economy, and wealth and business owners need to feel much better than they do today about paying their fair share of taxes. This can be achieved.


The first move needs to be taken by governments, which need to consider ideas oriented towards lowering, not raising, headline tax rates. Tax systems need to be hugely simplified, and the sad reality of corruption in tax systems, particularly in developing countries, needs to be addressed – and where it cannot be immediately addressed, interim approaches to addressing this need to be adopted with a view to ensuring that tax revenues are captured and go where they need to go.


Governments also have to commit to providing more in the way of certainty on tax rules, stripping out of the system constant wholesale changes of approach and overdesign round the edges which are usually targeted at very few people and end up complicating the system immensely for the majority. On this latter point, it is unacceptable how much wasted cost and effort is undertaken by taxpayers to adapt to ever changing tax laws only to find that the changes adapted to are themselves changed yet again. Particular issues are broken promises – where the government promises one thing (e.g. certain protections for assets held in trusts by foreign domiciliaries) but delivers another (tax on an arising basis on funds held in trusts whether or not the foreign domiciliary receives benefits).


Headline tax rates are the tax rates that a government sets out. These usually involve a variety of “top” tax rates, and in many countries tax rates are graduated, with those earning lower incomes being taxed at rates lower than those earning higher incomes. Tax systems between countries vary dramatically, fueling the mobility of the wealthy, who can basically choose which tax system to become subject to. Tax competition, like all competition, is a good thing – not an evil, and the freedom to live where you want is also a fundamental right we should all have and preserve. But this all has to work in a way that brings us to a fairer approach to taxation that can address global inequality, and fast.


It is not unusual to find countries that have headline rates of, say, 45% on income. This may be imposed through a single tax, or through a combination of local and national taxes. Politicians seeking to address inequality are quick to discuss the possibility of increasing headline tax rates – but this is not the solution. The question one needs to address is what actual tax rates are collected and from whom? Low tax rates combined with a broadening of the tax base can be much more effective than raising headline tax rates. If the tax system is a complex one, which too many are, how much does a wealth or business owner actually pay? And on what? And are headline rates only paid by those who cannot afford tax advice?


It is disturbing how things actually work in many countries. An owner of significant passive wealth who does not need to work may pay virtually no taxes if guided by expensive tax lawyers and accountants who navigate tax systems filled with complex tax incentives permitting deductions for investments in particular areas or for charitable donations that can include donations to one’s own charity that is controlled by the individual involved and all too often benefits the individual and their business more than anyone else.


It is not that the idea of an incentive to encourage particular investments is bad. There may be good reasons to encourage investments in social housing or sectors that will bring needed employment. But we can now see that the good intention of encouraging such investments through tax deductions has failed. Complex rules need to be developed, and once they are, tax advisors are quick to work their way around the rules to find ways to achieve tax benefits for their clients while ensuring that the investment funds are not at risk, compromising the objective of the tax incentive in the first place. The role of lobbyists in the legislative process makes things worse, as more in the way of loopholes and complexity are introduced.


The tax law becomes so complex that only the wealthy can afford to take advantage of all the deductions that are available. What this means is that someone who works hard and earns a good salary may end up paying the top headline rate of, say, 45% (47% with national insurance!). The wealthy  individual, even the one who is not a tax evader, but happens (for example) to legally provide their labour through a company, may end up paying 20% or even less on their income. Is this fair?


Complexity is often unnecessary and has not caught up with realities in changes in rates – for example my earlier reference to  settlements provisions that attribute trust income to the settlor – unnecesasry legisaltion as trust income is already taxed at the highest possible rate. This situation results in some settlors who are not additional rate taxpayers reclaiming the tax paid by the trusts and then having to hand it back to the trust. There are many examples like this in UK tax law. Why should a settlor who lends interest free to a trust from which he is excluded and then gets repaid the loan end up paying tax on the trust income for the next ten years – this is counter intuitive as are many other aspects of an over-complex system.


Could inequality be tempered with those earning at the lower end of the scale paying no tax or very, very low rates of tax? The answer is obviously yes, particularly if government revenues increase and the increased revenues of governments are applied to address the need for health care, education, housing and more. But governments fear that not taxing the mass of low-income individuals would reduce government revenues drastically. This is true if the lost revenue is not recovered from those who can better afford to pay more and if the relevant government fails to retain and attract those who can pay more to their country. But paying more does not mean moving the 45% headline rate to 70%.

What if instead the headline rate moves to 20%? To ensure that tax revenues are not compromised, this is combined with stripping out of the tax system all tax deductions for things like tax incentivized investments. This simplifies how taxes are filed and simplifies the tax system for all. Enforcement is easier, and things are clearer. And the country can attract, rather than repel, wealth and business owners.


Incentives for investments in social housing or other important areas can be addressed outside the tax system. This can allow the tax system to remain simple and pure, and to allow any incentive program to be supervised and administered by governments more carefully and thoughtfully than they are today.


Yes, there is much economic analysis needed to help a government gain the confidence to dramatically lower headline tax rates to achieve higher tax revenues. Finding the right headline rate can be achieved in stages if necessary. But thought should be given the doing this and to focus on broadening the tax base by attracting and retaining global wealth and business owners and ensuring that those who use government services actually contribute to them. Regarding this latter point, in too many countries there are too many who can avoid tax exposures by limiting their time in the country, leaving the cost of government services to those much less able to pay.


Taxpayers should be encouraged, through the tax system, to be happier than they are about paying taxes. A lack of trust in how governments spend tax revenues is among the reasons many wealth and business owners do everything they can to legally minimize their tax obligations while working hard to contribute to charities and otherwise benefit their communities. Trust needs to be earned, and while there are economic arguments against hypothecation of taxes, knowing that at least part of the tax you pay will be used to provide education and healthcare to your community and to address climate change and other needs may help moderate feelings of governments wasting tax revenues. Some hypothecated tax programs may also encourage voluntary tax contributions, something that can and should be part of an effective reform of how tax systems work. And the word “tax” in relation to some payments that wealth and business owners make might well be re-branded to better reflect a new collaboration between government and wealth and business owners.



About the Author


Philip Marcovici is retired from the practice of law and consults with governments, financial institutions and global families in relation to tax, wealth management and other matters. Philip is on the boards of several entities within the wealth management industry, as well as of entities within family succession and philanthropic structures. Philip is actively involved in teaching in the areas of taxation, wealth management and family governance. Philip is a member of the Advisory Committee of the Hong Kong University of Science and Technology’s Tanoto Center for Asian Family Business and Entrepreneurship Studies. Philip was a Founding Advisor to the 21st Century Family Business program created by Cambridge Judge Business School Executive Education and was one of the lecturers and facilitators for that course. Philip is a consultant to the CFA Institute on private wealth management matters and is a co-author of readings on the subject for CFA candidates.



Philip was the founder and CEO of LawInContext (now known as Baker McKenzie Link), the interactive knowledge venture of global law firm, Baker & McKenzie. Philip retired from his CEO role with the company as from the end of 2010, and from his Chairmanship of the company as from the end of 2011.


Philip was a partner of Baker & McKenzie, a firm he joined in 1982, and practiced in the area of international taxation throughout his legal career. Philip was based in the Hong Kong office of Baker & McKenzie for twelve years, relocating to the Zurich office of Baker & McKenzie in 1995. Philip has also practiced law in each of New York and Vancouver, British Columbia. Philip retired from Baker & McKenzie at the end of 2009.


Philip Marcovici is the former chair of the European tax practice of Baker & McKenzie and of the steering committee of the Firm’s international wealth management practice, of which he was one of the founders. Philip was also one of the founders of the Baker & McKenzie Asia-Pacific tax practice and was involved in a number of firm and practice group management functions.


Among others, Philip Marcovici received the Citywealth Magic Circle Lifetime Achievement Award in 2009 and, jointly with Fritz Kaiser, the Wealth Management Innovator award in 2011 for his work in instigating the Liechtenstein Disclosure Facility. In 2010 Philip received the Russell Baker Award from Baker & McKenzie in appreciation for his exceptional contributions to the firm’s Global Tax Practice. In 2013, Philip received a Lifetime Achievement Award from the Society of Estate and Trust Practitioners. In 2016, Philip received a Lifetime Achievement Award from WealthBriefing. Philip was selected as Top Adjunct Faculty for the academic year 2018/2019 by the Singapore Management University.


Philip is a graduate of Harvard Law School and of the law school of the University of Ottawa. He is admitted to practice in New York, England and Wales, Hong Kong and British Columbia, Canada (retired).


Philip is the author of The Destructive Power of Family Wealth published by John Wiley & Sons in 2016.



November 2020