“These Patriots Who Misuse the Law”: The Background to the United Kingdom’s Anti-Tax Haven Legislation of 1936

Abstract

This chapter examines the build-up to section 18 of the British Finance Act of 1936, which was passed to counteract legal tax avoidance involving holding companies and trusts located in tax havens. The chapter problematizes existing explanations for the growth of offshore tax avoidance that focus narrowly on the effect of dramatic tax rises during World War I. It argues that the prevalence of offshore holding companies in the interwar period represented an evolution of tax avoidance techniques that were already in use prior to 1914. The chapter investigates why the British tax authorities failed to take firm action against offshore avoidance until the mid-1930s and analyses the legal and political issues that administrators faced in formulating a coherent legislative response. It explains that, although the 1936 law later proved to be highly effective in combating offshore avoidance, its success was due partly to favourable decisions by the courts. This rendered it vulnerable to obsolescence when judicial attitudes began to change in the 1970s.