Lax tax and creative accountancy

Those of us of a certain age remember the Rolling Stones heading off into tax exile on the Riviera. As a teenager I thought they had achieved the perfect combination of sun, debauchery and economy.

Now I find I've become an accidental tax exile myself, although it's unlikely my exotic-sounding status will actually save me any money. When I headed off to Ibiza early last year I assumed that I'd continue to pay tax in the same way as before. I was self-employed in the UK and my clients were all still there. All that changed was my computer was now connected to Telefonica broadband rather than Demon.

But on a trip back to Scotland I spoke to Ross Mackenzie, tax partner with international accountants Mazars. "Most countries have a 183-day rule, which defines where you are resident for tax purposes," he explained. You don't pay the tax where it's earned, but where you live or your "centre of economic interest" as the tax authorities call it.

It sounds simple. You pay your tax where you live for most of the year. Well, it might be straightforward if Pitt the Younger hadn't introduced income tax to Britain a couple of centuries ago using a variation on the medieval fiscal calendar. So, while most other countries measure liabilities ending on December 31, Britain's year runs to April 5. "Some people try to use that difference to their advantage," Mackenzie told me.

Theoretically it's possible to receive two sets of tax allowances, but it's not easy. The UK Inland Revenue requires a a lot of evidence that one of its tax payers really has departed its shores. The department does, however, provide detailed information in booklet form and from its website.

In an ideal world, a move to the sun would also be accompanied by a reduction in tax. Unfortunately for me, the UK has just about the lowest rates of income tax in Europe - at least on paper.

Anyway, it is not that simple to work out which country will deduct the smallest proportion of your income. The Stones' old stomping ground, France, for instance, seems to squeeze high earners hard. Tax there, however, is assessed by dividing the income by the number of people in the household. And France recently lowered its punitive top rate.

Although tax is subject to political vagaries, an accountant will be able to make a reasonable assessment of liabilities according to the laws of your intended country of domicile. But accountancy is an art, not a science, and legislation does not always reflect varying national attitudes to tax. Often the declaration of income is regarded effectively as "voluntary".

The common Mediterranean attitude is: "Which do you love more - the state or your family? So why should you give more than is necessary to the state?"

In many places - and for obvious reasons I'm not going to be too specific - avoidance is effectively built into the system. It is, for instance, still quite common in rural areas for property and other major purchases to involve a substantial amount of "black money". Perhaps a third of the actual price of a property may be handed over in cash and never declared to the authorities.

As a result, it was suggested the mini economic boom in the run-up to the introduction of the euro was caused by people rushing to spend their undeclared pesetas, lira and escudos before they became worthless. It also explains something that had baffled me. I couldn't understand why the hardware store near where I live has the largest selection of safes I have ever seen. Obviously some are for tourist hotels and apartments, but many look big and secure enough to store the cash and crown jewels of a small sovereign nation rather than a holidaymaker's papers and trinkets.

As for me, I'm still very British about declaring all my income, even if I'm not going to be rendering unto Gordon what is Gordon's any more. But if I had fulfilled my rock star ambitions, I'd probably now be resident in Dubai, which has a hard-to-beat zero rate of income tax.

· Nick Clayton is a freelance writer and web content consultant.