Tax Break

John Fisher, international tax consultant

Archive for the month “February, 2013”

Holy smoke

Translation App

Translation App

On Tuesday I was asked to review a generic letter to clients that had been “professionally” translated from Hebrew to English. Wielding my red pen with the hungry anticipation of a famished vampire, I proceeded to correct just about everything on the  page except  the spaces between the paragraphs. Not being able to resist the kind of stupid one-liner that costs me so dearly in my annual employee feedback review, I passed the sheet nonchalantly across the desk with the comment, “Apart from that, it is perfect”.

The truth is that there wasn’t a single word in the document that was technically mistranslated – it’s just  that, if words could be compared to cars,  it was like a totally fatal pile-up on a fog-covered stretch of the M1.

 I had a similar, if less violent, reaction when I read the English translation of the Pope’s resignation speech. The use of the word “convoked” in the first sentence sent me diving for my Shorter Oxford English Dictionary to discover whether this was, what one of my English teachers used to call a “lovely word, doesn’t exist”. Well, it certainly does exist and, what is more, it is a faithful translation of the original Latin “convocavi” although a better oiled translator would definitely  have gone for the more comfortable “convened”. Having finally located the original Latin text (there isn’t much call for it these days outside the convocation (good word) of cardinals who heard the speech in person) I noticed that for the term “not only…but also”  His Holiness had used ” non solum…sed etiam” rather than the more common “non modo …sed etiam”. It made me wonder whether he had gone for a word that conveyed his extreme loneliness (solus=alone) in coming to his decision – a sentiment that never made it into the English version.

“Lost in Translation” could have been a good title for a movie if Sofia Coppola hadn’t got there first (and won an Oscar in the process).

Last week France, Germany and the UK issued a joint communique to their G20 partners supporting the newly released OECD report on Base Erosion and Profit Shifting (BEPS). The report came in the wake of the growing outcry among some leading nations that they are not able to tax a big enough share of the global profits of multinational groups. Although the Americans have been slightly less vocal on this since the US is the godhead of a large proportion of those groups, the IRS has been trying to hammer Amazon recently on its profit shifting to Luxembourg – so some cooperation can be expected.

What is interesting is that this report is not actually a report. It is a framework designed to pinpoint the problems that exist. Talk is of a report in July. To this must be added the keenly anticipated OECD progress report due in April on “Transparency and Exchange of Information”, not to mention the Beneficial Ownership proposed Model Treaty update from October 2012. Then, of course, there is the Daddy of them all  – Working Party No 6, which sounds like something out of Orwell’s 1984, that has been spending somebody’s (the taxpayer’s?) money for several years now, working on the tax treatment of “Intangibles”, the easy mobility of which is one of the tax world’s core evils. Although an update was only expected in late 2013, the Working Party  shocked the world (you must have felt it) when it gave a progress report last June. There might even, one day, be a final report (shock, horror).

But one thing is almost for sure – whenever all these committees, working parties and convocations report – NOTHING WILL BE ANY CLEARER. Why? Because they will be written with the usual lack of clarity that comes from culturally diverse  groups trying to crawl their way through the intricacies of unshared language. And the really sad thing is that everyone (and that includes people who don’t even know how to fill in a tax return) knows what really needs to be done to get the international tax system straight.

What governments would like to do to international tax planning

What governments would like to do to international tax planning

There is a solution to the reams of gobbledegook. It came to me a few years ago when the family was vacationing in Italy. Arriving in Firenze (Florence to beer swilling Brits), I attempted to follow the Italian English instructions from the landlords of the apartment we were renting in the old city explaining how to drive in and deposit our suitcases. If you have never been to Firenze (book a ticket NOW) you may not know that you are supposed to park outside the old city precincts in car parks that fleece you beyond anything you imagined even the Italians were capable of. Approaching the city walls I noticed one of those wordless round red signs with a horizontal white band through the middle. Suggesting sheepishly to my wife that this was, perhaps, not a great idea she insisted – on the basis of the landlords’  instructions –  that we continue. Two minutes later, having braved a couple of narrow one-way streets and unavoidably driven back out through the city wall, I found myself facing the same sign again. Try again, I was instructed. The third time I revolted, made for a car park and bundled everybody into a taxi. A few months later, true to their motto “We try harder”, Avis made sure I received two identical tickets from the local Cabinieri for €90 apiece.

The point is that we all understand symbols and we don’t understand Italian English. It is time for international bodies like the OECD to abandon all these reports and revert to hieroglyphics and numbers. Instead of reeling off thousands of pages of draft, interim draft, final draft, and really final draft reports – they should produce powerpoint presentations with diagrams based on internationally agreed symbols and icons, accompanied by multiple numerical examples of how the thing the diagram is representing is supposed to work. I actually remember the Americans putting out a Treasury Paper on withholding tax from  software payments in the 1990s which, while not adopting the powerpoint approach, used around 20 examples which made the whole thing totally clear even to someone like me who is not an American speaker.

The next President or Pope?

The next President or Pope?

There is wide belief that Pope Benedict has earned a long and happy retirement. As regards his successor, the older among you will remember the unfortunate pope whose heart gave out, or – if you are into conspiracy theories – was given out, a month after his ascension to the papacy in 1978. He decided to take the name of his two predecessors – John XXIII and Paul VI – becoming Pope John Paul I. His celebrity successor, presumably out of respect for his early demise, named himself John Paul II.  If the new guy wants to stay in the headlines he might take a leaf out of John Paul I’s  book and name himself after his five predecessors –  Pope  John Paul John Paul John Paul Benedict I. A juggernaut of a name like that  would survive any language crash.

Tax Wars: The Authorities Strike Back

Gagwriter extraordinaire

Gagwriter extraordinaire

Suicide is not a laughing matter. Last week marked fifty years since American poet, Sylvia Plath, took her own life, and the benefit-of-hindsight news stories on the subject were uniformly depressing. It is interesting, therefore, that one of the most successful comedy series in television history opened each week with a song about suicide. Thirty years ago this month  Alan Alda climbed into a helicopter, circled over an improvised “Good-bye” message set in the Korean soil, and, together with M*A*S*H,  flew into the sunset.

It transpires that, after seeing the 1970 film,  it was “Suicide is painless” with such cheerful lines as: ” The game of life is hard to play, I’m gonna lose it anyway”,  that inspired Larry Gelbart to script and produce a TV series. Played in a minor key, the melancholy tune exposed the funny, but almost tasteless lyrics, as pure irony – the song was anti-war. Screened when the Vietnam war was at its most painful to the American people (not to mention, the collaterally damaged residents of Cambodia and Laos), Gelbart fought with CBS over the infantile canned laughter that was shoe-horned into every pathetically unfunny US comedy series of the time – noting that there was no canned laughter in the real Korean War. He ultimately achieved a compromise whereby he was allowed to omit the puerile cackling from operating theatre scenes (MASH stood for Mobile Army Surgical Hospital). It is to Gelbart’s  credit that he managed, like his subsequent triumph with Dustin Hoffman’s cross-dressing “Tootsie”, to avoid turning the whole thing into a sick (sic)  joke.

We tax planners, of sedentary build and heavier step, are sometimes less nimble with our words and actions. Tax planning can sometimes be a sick joke, warranting a single finger salute down one’s own throat. Take Spain, for example (sometimes, I wish they would).

If they consider this fair, no wonder they don't pay tax

If they consider this fair, no wonder they don’t pay tax

When the Spanish Government hiked the VAT rate to 21% last September as part of the austerity programme resulting from the Euro crisis, a theatre in a small town in Catalonia found a way round the increase. Staple foods were still only liable to 4% VAT, so the theatre owner received permission from the town council to set up a vegetable stall outside the box office, where theatregoers could purchase a carrot for €15 – €17 inclusive of 4% VAT (the difference arising, presumably, from variances in size of the carrot). Free with the carrot came a theatre ticket. It is understood that, prior to the commencement of performances, patrons were asked – in addition to turning off their mobile phones – not to munch their carrots (which, apart from the noise, presumably might be needed for re-admission if they popped out in the interval). Had I been the Spanish authorities, I would have garotted the lot of them and fed them to the bulls.

This kind of shtick gives tax planning a bad name. It is the equivalent of throwing a custard pie in the face of the government to the accompaniment of pathetic (canned) laughter or, to be more on topic, spitting out a liquidised carrot giving the “hilarious”  impression of spontaneous vomiting. Yuck!

It appears, strangely,  that there is nothing illegal in what the Catalonian Jesters did. On the other hand this kind of tax avoidance is definitely way beyond the parameters of what members of  the Spanish Cortes had in mind when they conjured up the legislation.

There are currently moves around the globe to curb excessive tax avoidance, in the form of General Anti Avoidance Rules (universally known by the acronym GAAR, which onomatopoecially  sounds pretty much like someone with a single finger stuck down his throat).

Britain’s new rules should enter into force in the next few months while India, to the relief of foreign investors still digesting the Vodafone case, has delayed implementation until 2016. Australia and New Zealand have had rules for donkey’s years while Canada came on board in the 1980s and China a couple of years ago. The US has something  slightly different because the US always has something slightly different.

Occasionally, committees have been known to do a good job

Occasionally, committees have been known to do a good job

Although, in principle, the GAAR is a pretty slam dunk concept, it is in practice highly controversial. On the one hand governments need to be able to curb the most blatantly aggressive tax planning; on the other, investors and businessmen crave certainty while a GAAR instills fear (often justified) that virtually everything is up for grabs. Methods to try and achieve maximum fairness include having a regular tax authority committee, rather than individual tax officers, to decide on GAAR cases accompanied by very narrowly defined terms for applying the GAAR. Ultimately, the GAAR is, by definition, subjective and there cannot be any perfect answer. It depends from which angle you look at it, and both tax authorities and tax advisers often contort themselves into the strangest of poses to obtain the weirdest of views.

With all the drama of the tax wars (dear reader, allow me my fantasies) it is probably high time  for a TV spin-off of another major film. How about the mega-successful, Les Miserables ? The tax profession would be very happy with the current cast – Hugh Jackman as the morally superior tax planner Jean Valjean making the world a better place and Russell Crowe as the stickler-for-the-letter-of-the-law tax enforcer Javert. The world’s tax authorities might, however, have a problem with this. They are more likely to go for the late Heath Ledger, with a bucket of make-up thrown over his head and an entire red lipstick smeared over his lips, as a psychotic Valjean and Christian Bale as the black-caped saviour of the universe. Had Larry Gelbart still been around to take on the project, he would have been challenged by “One day more”. Written in a major key, it includes the sickest of Javert’s lines  “I will join these little schoolboys, they will wet themselves with blood”. On second thoughts, maybe he would have just turned up the canned laughter and comforted himself with the fact that all the characters were French.

The perfect spy

About as popular as Richard III, they didn't give him a single ticket in 527 years

About as popular as Richard III, they didn’t give him a single ticket in 527 years

Monologue or soliloquy: that is the question. When Shakespeare’s Richard III – as opposed to the bloke of that name who has been illegally parked in Leicester for the last 500 years – first ambled awkwardly onto the stage back in Elizabethan times, he delivered a soliloquy. Now, a soliloquy is what I  deliver when I think I am lecturing my teenage kids but am, in fact, talking to myself. “I, that am rudely stamped, and want love’s majesty to strut before a wanton ambling nymph” was Richard’s mischievous think-out-loud excuse for the other kind of obscene havoc he was about to wreak.

The great Laurence Olivier, making the part his own at the New Theatre in 1945, played that first scene differently. Walking onto the stage, he was about to speak when he hesitated, turned, walked to a door at the side, closed it firmly, walked back to the same spot and started: “Now is the winter of our discontent …” With that simple act he turned the soliloquy into a monologue. That kind of monologue is what I, mistakenly, think I am delivering when I am lecturing my teenage kids. The closing of the door meant that Richard was about to talk directly and secretly to the audience, extending the stage to the entire theatre.

You can get away with that kind of trick in the theatre, where the script is already written and leaks don’t matter. In real life, you are likely to end up with rotten tomatoes all over your face.  Take Israel’s decade-old tax reform for example.

Ten years ago, on January 1, 2003, Israel abandoned its old bastardised territorial taxation basis for, what was then seen as, a more state-of-the-art personal taxation system. Remarkably for Israel  where, similar to weeds,  laws often grow overnight, there was plenty of warning. The legislation was published in May 2002 with various transitional provisions, to give the taxpaying public time to organize their affairs. So far, so good.

As is the wont of our calling, tax specialists from Dan to Beersheba  had the wording on the dissecting table within  5 minutes of its hitting the newsstands. And, as with all new legislation, there were plenty of glorious loopholes. We might have been too busy to get home  to our next of kin, but at least there would be guaranteed bread, meat and ale on the table for years to come while the tax authorities slowly caught up with legislative amendments. That, dear reader, is how we, of deformed profession,  get our kicks.

Then, the Laurence Oliviers got going playing to the gallery.

It never got as bad as this

It never got as bad as this

Articles by the flotsam and jetsam (as well as occasionally sane and, hitherto, respected gurus) started popping up in the national press. Trying to up their profiles, these individuals published tax planning ideas arising from the reform. Austria, previously best known to Israelis as the birthplace of Hitler, became the place to set up a foreign holding company. The Netherlands, the previous hotspot for international holdings that the new CFC legislation had specifically sought to nuke, would actually survive. And the list went on.

I remember sitting in horror as articles were dropped on my desk (often by smirking audit people – Auditors are to Tax Consultants what the House of York was to to the House of Lancaster). But why was I worried? The Tax Authorities do not read newspapers, right? Wrong.

Thanks to all those egomaniacs, late in  2002, in what was probably a first for tax legislation in the State of Israel, an amendment to the new law was passed by the Knesset BEFORE it even had a chance to come into force.

Of course there was still plenty wrong – both from the perspective of the tax authorities and the taxpayers. What is really weird is that, despite protestations from all sides, there has been very little legislative change since. That is not to say that tax has been ignored by the Knesset. There have been plenty of other amendments – trusts, incentives, even a super-retro medieval pure territorial basis for new residents and old-timers coming home. But the great reform of 2003 is, ten years later, still pretty much the same.

We have a highly limited  underlying tax credit system that all sides agree, distorts international structuring. CFC legislation misses its goal by a mile. There is a Participation Exemption that everyone has forgotten (I am only aware of it having been used once). Transparent Company rules were made dependent on the Finance Ministry drawing up regulations – we are still waiting. Setting off of foreign income against losses is barmy (a senior tax official once pleaded with me to find a loophole, as he agreed that the double tax my client was facing was totally unfair). And the list goes on.

The biggest irony is that the Knesset passes laws with frightening ease. In a unicameral (single chamber) system a law can go through 3 readings while most Knesset members are out to lunch. That is actually grossly inaccurate – if the Knesset were a theatre it would close down after 3 performances. Most of the time there is hardly anybody there to go to lunch.

There is, however, light at the end of the tunnel. The incoming Tax Commissioner is a career tax authority person with extensive experience in the international tax sphere and a real desire to get things done – King Henry VII, so to speak. Tax Break wishes him well.

The absolute triumph of hope over experience

The absolute triumph of hope over experience

Shakespeare’s most famous soliloquy was, of course, “To be, or not to be: that is the question”.  The no-less-great-than-Laurence-Olivier, Richard Burton once  related that, as a young actor playing Hamlet at the Old Vic in the 1950s, he began a performance to uncomfortable accompaniment. As he started his first speech he discerned a low growl coming from the audience. Looking down between the footlights he made out a rotund old man who, he soon realised, was reciting the lines by heart together with him. At the end of the play, as Burton sat in his dressing room with a whisky and cigarette, the old man suddenly appeared at the door. “My dear Lord Hamlet, may I use your lavatory?”, he lisped. Rather than telling him to get lost, Burton graciously agreed.

The rest of the conversation was not recorded for posterity but, it is to be assumed, Churchill was duly relieved.

What a wonderful world



Although we are a family of fairly avid readers, other than a few coffee-table staples, books do not  feature in our living room. Well-leafed and generally abused volumes are neatly filed on bookshelves in bedrooms and on our upstairs landing, or unceremoniously dumped in unlikely corners of the house (I stumbled on a haphazard pile on the staircase to the roof the other day). Some authors are more popular than others but we rarely sport a full set. We have all read the Complete Juvenile Works of JK Rowling (including The Tales of Beedle the Bard) but would be hard pressed to lay hands on more than two installments, both of which are by now missing critical narrative. Dickens, Austen, Le Carré and PD James are well represented in various fonts and sizes. But, perhaps our most preserved  set, neatly placed above our youngest son’s desk, is Terry Deary’s Horrible Histories.

Now, I am sure Mr Deary would not consider it  libelous were I to state that this is not great literature. In fact, I am not sure it passes as literature at all. With titles like “The Terrible Tudors” and “The Even More Terrible Tudors”, the illustration packed volumes  tell us, in graphically comic detail, just how horrible life was in the bad old days – pretty horribly.

Reading (or, to be more precise, leafing through)  the Horrible Histories, it is easy to be lulled into complacency about the present.

Heil Hitler!

Heil Hitler!

I am beginning to think that the world is not quite as nice a place as I would like to think it is. To be clear, when I say “world”, I do not mean the  majority of the 200 or so countries that constitute that  carbuncle on the face of modern civilization, the United Nations. One day, when those rogue nations are free-speech toting liberal democracies, Mr Deary will be able to make another fortune writing their Horrible Histories.  I am referring to cosy countries like yours and mine that think they are approaching the final synthesis in the Hegelian dialectic when all households will have at least one  TV in every toilet.

To be even clearer, I am also not referring to the horrendous actions of individuals and organized groups. There will always be outliers in every sphere of society. It is western governments that are the problem. They have become very good at repackaging old nasties in inoffensive euphemisms and glossy camouflage. And  if we, the silent majority, do not watch out – they will get away with it.

Take torture, for example. The activities at such sunny resorts as Guantanamo Bay are  regularly referred to as Enhanced Interrogation Techniques, which sounds like a project undertaken by a management consultancy firm. Even the mention of Waterboarding gets me humming Beach Boy tunes rather than thinking  of medieval Ducking Stools.

Even our own tax world has its fair share of practices cleaned and rebooted from yesteryear.

There was the 504 year sentence handed down last year to a Greek tax miscreant. Apart from the absurdity of a sentence that cannot possibly be served, what possesses any modern system to deprive a man of his freedom for all eternity for a crime that did not involve the taking of another life. We all (other than many of the members of that august institution, the  United Nations) are appalled by stories from more than 200 years back of young men being hanged for stealing sheep.  To all intents and purposes, there is not a colossal difference.

"Tell us the whereabouts of your father, boy, and we will give you $104 million"

“Tell us the whereabouts of your father, boy, and we will give you $104 million”

And what about the award  of $104 million that the IRS made last September  to a single Whistleblower in the UBS case? The first thing that came into my mind when I read the story was W F Yeames’s painting of a Parliamentarian’s  interrogation of two young children in the English Civil War, as he tries to establish  the whereabouts of their father. If there was one quality rammed into me by the British school system it was the Eleventh Commandment, “Thou shalt not sneak”. Honour among thieves was a real value and we would have rather faced the stick than split on our schoolmates. To be fair, teachers expected and respected that behaviour and often punished the snotrags that “told tales” (mind you, it didn’t stop the bloody sadists using the stick anyway). Waterboarding, at least has the possible justification that its use might save many lives. What is the IRS’s excuse?

Then, a few short weeks ago, none other than Her Majesty’s Revenue and Customs, for the second time in less than 6 months, published on Flickr mug shots of the 32 “Top Tax Criminals of 2012” .  When I was a kid, I used to pass a big blue plaque every day in our local high street that read “On this site stood the Parish Cage or Lock-up”. My (incorrect) assumption throughout my childhood was that this was the site of the local Stocks, where petty criminals would have their heads, hands and feet secured, allowing passers-by to take free aim with eggs and tomatoes from the nearby Tesco’s that had passed their sell-by dates. I actually had a taste of this as a young (innocent) adult. In charge of a children’s summer camp one rainy August, my team organized a Summer Fare. One of the star activities was throwing anything that went mushy on impact at yours truly tied helplessly to a chair.

Publishing the photos is the same concept of public humiliation that I thought had gone out with the Stocks and Public Executions outside Newgate in the 19th century. What is more, all but one of the wretched cons are behind bars already serving out their sentences and they are unlikely to be seen around town for some time to come. So what was achieved?

There is one thing, though, that can be said in favour of the British system. Publishing the photos HMRC announced that they were serving a collective 155 years and 10 months in prison. Had this been been Greece, that wouldn’t have even covered the third off for good behaviour of a single one of them.

I am not an anarchist. I passionately believe that people should not be allowed to break the law with impunity. However, the punishment should fit the crime. Furthermore, governments should think about the negative effects on society as a whole of efficient but, essentially unethical, laws and practices. There has been a lot of publicity recently about the outrage of the British Parliament over the tax practices of US multinationals. As I reported a few weeks back, Margaret Hodge – who led a Parliamentary investigation – told the representatives of Google, Amazon and Starbucks: “We are not accusing you of being illegal, we are accusing you of being immoral”. I suggest you get your own House in order first, dear.

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