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Archive for the month “May, 2013”

No representation without taxation

Temple of the Western World

Temple of the Western World

Ex-nun Karen Armstrong writes in her iconoclastic book “A History of God” that the rationale behind sacrifice of the first-born child in the ancient pagan world was the replenishment of the strength of the god believed to have begat it (begetting is what gods and men did in those days). In the intervening years mankind has made strides with the invention of the wheel, the plough and the iPhone but, as has been shown for the umpteenth time over the last fortnight, human sacrifice is still alive and well and living in Washington DC. I refer to the sacrificial dismissal (euphemistically called a “resignation”) of the Acting Commissioner of the Internal Revenue Service, Steven Miller, over bias against Republican organizations in the period prior to his appointment when the Service was under the command of a Bush Administration appointee.

The story so far.

If they had been denied 501(c)4 status, they would have shot the bastards

If they had been denied 501(c)4 status, they would have shot the bastards

Back in 2010, when Barack Obama was a lame-duck president looking at  his prospects for a second term (as opposed to today, when he is a lame-duck president not looking at his prospects for a second term),  the Cincinnati Ohio lair of the Internal Revenue Service was busy checking applications for 501(c)(4) status. 501(c)(4) is one of those rare teaspoonfuls of the milk of human kindness hidden in the Internal Revenue Code that grants tax-free status to organizations established for “social welfare” purposes. This is not quite the same as Apple  which spends lots of money on tax attorneys and accountants to achieve a similar result. In examining applications, the junior level IRS team charged with rooting out dodgy applications made the unfortunate mistake of scanning the  list of 2400-odd requests for potential abusers rather than putting on a blindfold and stabbing a pin in the sheet. Snuck amid the Aid the Aged, Help Our Heroes and Welfare for Warfare Widows organizations were Superpacs and suchlike aiming for the social welfare of Tea Party Members and other such weirdos standing for election to Congress. They rather naively used “Tea Party” or “Patriots” in their names – in their reactionary zeal they would have done well to take a leaf out of Mr Waverley’s book in the sixties’ series “The Man from U.N.C.L.E” – he ran his operation from behind a Chinese Laundry.

Anyone who has ever departed an American airport knows that “profiling” is not in  Homeland Security’s oxymoronic lexicon. I, an overweight  Jewish Accountant with a British passport, have on more than one occasion been subjected to a rigorous search while jealously observing prima facie candidates for Guantanamo Bay breezing past on the way to an early rendezvous with the Duty Free shop and its tempting illicit alcohol.

Jumping over the murky bits, two weeks ago at a meeting of the American Bar Association Steven Miller, the Acting Tax Commissioner,”planted” a question to Lois Lerner, the now suspended head of  the  Tax Exempt Organizations Division of the IRS, that solicited a pre-planned apology for procedures that had singled out organizations that were trying to deprive the nation  of its rightful taxes. Second mistake: if you work for the IRS don’t try to be too clever – it later transpired that, in making the apology, the IRS were trying to dampen down the effect of a Treasury audit that was about to be made public.

The time was now ripe for the Republican gum shoes on Capitol Hill to put the boot in. Who gave the orders? Who knew what? When did they know it? Why did they shut up? Did the White House know? Did someone tell President Satan-Incarnate?

Dragged before a Congressional Committee, the Acting Commissioner. who had not even been in office at the time, was forced to resign. His predecessor, Douglas Shulman would have been made to resign but he couldn’t because he had already gone, so he just got dragged before the Congressional Committee. Joseph H Grant,  the IRS tax exempt organization supremo, suddenly remembering that he had always wanted to take up fishing,  took early retirement . Lois Lerner – she of the apology to the Bar Association (how  anyone could choose to apologise for anything to a forum of lawyers, I will never understand) – took the 5th Amendment  and was promptly sent on a paid vacation in the hope that she would regain her power of speech.Meanwhile, Attorney-General Eric Holder did what Attorney-Generals were appointed to do – look serious and announce a criminal investigation.

This seems something of a storm in a teacup. I can understand the Republicans’ indignation at being caught with their hands in the till while freeloaders with names like “Hospices for the Terminally Ill” and “GLBTs for Congress” got away with it, but the wholesale sacrifice of senior competent personnel who had personally done little or nothing   wrong  in order to assuage the fury of the gods is primitive. It is also counterproductive – giving a boost to the careers of those it was designed to destroy.

No longer do we slaughter and burn our sacrifices. As recently as 1759 Voltaire wrote of the execution of Admiral John Byng for not managing to do more in battle with the inadequate resources placed at his disposal by the British Government. Nowadays, we send them out through the revolving door. I had previously never heard of Steven Miller or Lois Lerner (when her name came up, my first thought was of a lovesick Superman). When, in six months time, they almost certainly appear as senior partners in major Washington Law or Accounting  firms, their 15 minutes of celebrity will have provided them with years of  client-pulling power (only time will tell if Joseph H Grant can be tempted away from fishing and playing golf).

Even 40 years ago, Goodbye was Goodbye. He never made it back

Even 40 years ago, Goodbye was Goodbye. He never made it back

Although I am no fan of Barack Obama (despite still believing he was the better of the two candidates in the 2012 election), I sincerely hope this issue does not escalate into a high level scandal. The Watergate misdemeanour 40 years ago led to spin-offs such as Irangate, Monicagate and at least a hundred others. I don’t think I could cope with scandals with names like Amazonfiveohoneceefour and Applefiveohoneceefour.

In the meantime please join me in saying one hundred times: “Daniel I Werfel”. The new Acting IRS Commissioner may never hit the headlines, but he is surely entitled to as much fame as Douglas Shulman, Steven Miller and Lois Lerner.

Chanson d’Amour

2006 Eurovision Song Contest winners. Real class act.

2006 Eurovision Song Contest winners. Real class act.

I don’t think it is a coincidence that the French Government proposed a new Culture Tax in the same week as tonight’s Eurovision Song Contest.

The Europeans have  made some pretty bad mistakes over the years such as two World Wars, the Euro and Belgium. On the other hand, like the Common Market and the Division of Germany, the Eurovision Song Contest seemed like a good idea  at the time. Back in 1956, the concept of an entire continent seeing a live TV broadcast was the stuff of science fiction – but so was going to the Moon, and the Americans had got that out of their system by 1973 when Anne-Marie David won the competition for Luxembourg with “Tu te reconnaitras”.

French, that language of haute culture, has always had a special place at the Contest. Scoring is in French and English just to needle the Germans and , as recently as 1962 when France won with “Un Premier Amour”, no fewer than 5 of the 16 entries were sung in that beautiful tongue.  In 1967, although the winner was Britain’s barefoot Sandie Shaw, Luxembourg’s 4th placed ” L’Amour Est Bleu”  became by far the bigger international hit (The Austrians came inexplicably nowhere with a ditty entitled: “Warum Es Hunderttausend Sterne Gibt”).  It seems that, as long as the French and their satellites were singing about their favourite cultural pastime “Amour” they were in the ascendant. Fifty-odd years later, with the annual contest resembling a circus freak show, the 2013 songlist only includes one French entry: “L’enfer et moi”  performed by Amandine Bourgeois (you couldn’t make it up) with the recurring refrain (translated): “I’m gonna give you hell”. No chance. The Gauls should have stuck to what they know best – surrendering to love (or should that be, loving to surrender?).

Although the Eurovision Song Contest is no longer a bellwether of a country’s musical prowess – the British have even taken to using it as a Testimonial for hard-up-and-over-the-hill artists such as last year’s 76-year-old Engelbert Humperdinck and this years 61-year-old Bonnie Tyler – the poor French really are losing the international culture wars. Even the language of international diplomacy is being continually eroded as English marches on.

However, it is heartwarming to observe the stubbornness and tenacity of the French people in standing alone with North Korea in rejecting the spread of US  culture across the globe (although accounts suggest that Kim Jong-un is a far more ardent consumer of American everything than his “Let’s go Armageddon” image portrays). Even the Chinese have just elected (in the most obtuse sense of the word)  a Ronald Reagan hairdo look-a-like  as their president.

I genuinely hope not

I genuinely hope not

A French Government commissioned report issued last week – President Dumbo-L’Elephant  likes reports as they buy him time – recommended a 1% tax on the sale of internet hardware products such as smartphones and tablets in order to help fund the “French Cultural Exception” policy.  For the Philistines among us (which really means “the Philistines among YOU” but, unlike the French, I am being polite), the French Cultural Exception policy is designed to protect France from  market forces (sacre bleu!) and foreign competition. “Foreign” is a barely disguised euphemism for “American.” The justification provided by the French Culture Minister, Aurelie Filipetti (who I picture making her announcement in a Christian Dior silk gown, her ears and neck dripping with diamonds) was that the tax would compensate for the fact that so little revenue is contributed to State coffers by digital content, which is probably true since most of it is in English.

With the annual inflow of an estimated €86 million, perhaps French directors will be able to afford music in some of their films while dubbing Hollywood classics like “The French Lieutenant’s Woman”, “French Connection”, “Le Deuxiemme French Connection” and  “Minuit in Paris” (pronounced Pareeeee).

Meanwhile distinctive Paris architecture (amazingly untouched by the ravages of 20th century wars mainly because they were ravaged elsewhere), a national commitment to the eccentricities of French cuisine, loyalty to French-built cars (consumer masochism), a violent reaction to the use of English and a commitment to a work ethic that should safely bring the country to its knees within two years,  result in a truly distinctive French experience for the visitor to France.

Of course, they are not totally immune. A walk down the Champs Elysees, host over the years to a multitude of foreign-made jackboots, reveals a quiet invasion by multinational retailers that have replaced many of the quaint Cafes of old – but at least they are trying.

The Eurovision Song Contest has, over the years, moved from an elegant boast of the continent’s popular music, to inane tosh (the all-time classic of which was “Boom-Bang-a-Bang”) to a competition fit to be sponsored by national garbage collection companies.

That was the day

That was the day

The high-water mark of its nearly 60 year history was definitely 1974, when a young Swedish group decided not to sing in Swedish; future artists, putting  two and two together,  worked out that there was a reason – other than being hated by the Greeks -that  Turkey always seemed to gravitate towards “no points”, and started to follow suit.

The French would have done well to note the title of the winning song for Sweden that night. It was, of course, “Waterloo”.

Never judge a book by its e-ink screen

Books have a special place in the Senate's heart

Books have a special place in the Senate’s heart

Amazon is hardly ever out of the tax headlines these days. Following on from management’s mauling by a British Parliamentary Committee late last year and the developing Transfer Pricing dispute with the IRS,  last week all eyes were on Amazon’s reaction to the Senate’s passing of the heat-seeking, this one has your name on it A-M-A-Z-O-N, Marketplace Fairness Act. Although it is still far from certain that the legislation will get through the Cock Fight of the Republican-controlled House, the great e-tailer has been preparing itself for the day after Armageddon when Sales Tax (the US’s primitive alternative to VAT) will be charged on all e-commerce in the US irrespective of whether the seller has a “Nexus” in a particular State or, for that matter, any of the 50 States and  the District of Columbia.

As a child I was not one of the “Buy me” set so I suppose it is logical that, as an adult, I am not part of the “Must have” set. When it comes to electronic accessories, apart from the obligatory laptop and smart phone, the only consumer  device I possess is an Amazon Kindle. For the uninitiated, a Kindle is a book that lacks pages, a spine and a half-price sticker grafted onto the  front cover with irremovable super-glue.

The E-book, I am told, is the absolute future of reading.  With a Kindle you can, for as little as the price of  a hard copy from Barnes and Noble or Waterstones in a 3-for-2 deal,  have the digital imprint of the book of your choice (if the publisher has a contract with Amazon) delivered instantly all the way to your  bed or toilet seat.  And it is not just the immediate availability. The Kindle is so much more convenient than a book.

For a start, you can populate a Kindle with hundreds of titles so that, if you are traveling, you can read at least a hundred books on the plane, or in foreign business meetings or while your family is admiring the beautiful places you have come on vacation to see (we will get to beach-reading later).

Then there is the weight – the Amazon site told me that my Kindle would be as light as an average book. While I am aware that, having been around for over 3 years, my device should be looking for a partner to join it marching out of the Ark and there must now be lighter versions,  the weight claim just reminded me of all those economy fuel consumption tables car manufacturers stick on their advertisements (’50 mpg’ based on traveling through the Texas desert on cruise control at 45 miles per hour). My machine weighs in at about the same as a hardback copy of the Complete Works of Shakespeare with a piece of lead piping as a bookmark. And that is before I take into account the financially crippling leather cover with courtesy light (I suppose in case there is a power cut).

And what about that feel of where you are in a story? No longer, as you close your book, do you need to look at where the bookmark is located and think “Oh good! I am about two-thirds of the way through”. Now, with digital accuracy, you know that you only have 31% to go – although, on my antique piece of electrickery at least, I do not have any bloody idea what page I am on. And why have to flick back through the book searching for your favourite bit, if all you have to do is remember one key word like “decapitated” and the search function will take you there without delay?

But the best of all is the screen. Busy people have to snatch reading time. And that often means bedtime. I cannot count the number of times in my not-any-longer-so-short life when I have woken up in the morning to find my latest paperback lying on the floor next to me or spread across the pillow, a few pages unceremoniously creased, ready to be ironed out under a stack of telephone directories. If you have ever fallen asleep reading a Kindle, you may know that, while pages of a book can be approximately returned to their original form, it does not help to put a creased screen under a pile of telephone directories.

There was no "Do not immerse in water" warning in the instructions

There was no “Do not immerse in water” warning in the instructions

What about water? Electronic devices have a greater fear of water than the Ministry of Magic had of Voldemort. Have you ever tried luxuriating in a hot bath with a glass of wine in one hand and a paperback book in the other? Well, I have not, but I am told it is a delightful experience. While taking an E-book into the bath may not have quite the same effect on you as dropping in a mains-connected 3 Kilowatt heater  to warm up the water,  it will have the same effect on the Kindle. On the same lines, although I am not much of a beach-bum myself, it strikes me that the sand-soaked shore of the Mediterranean is not an ideal locale for a community of electronic devices.

Lest we forget, the Kindle may be the future of civilization as we know it, but Amazon has a pretty nifty business in distributing those hardcopy books we dinosaurs so love. In fact, it has the biggest business. And thanks to the Marketplace Fairness Act, it is going to get even bigger. And there is does not appear much good about that.

Currently, companies like Amazon that ship goods to your door have an advantage over regular retailers in that , when they sell into a state where they do not have a warehouse or other permanent presence, they avoid local sales tax. This has led Amazon to choose where to warehouse its goods and provide a less-than-immediate delivery service in many States. The upshot has been that traditional distributors have been able to exploit a market advantage in such States by either offering the standard walk-in shop service or same day delivery for mail orders through any one of their multiple outlets in the State. Now that it looks like Amazon and its ilk are likely to be required to charge Sales Tax irrespective of presence, they are evidently planning a massive expansion of  their warehouse facilities across the country to enable same day delivery. The end result will be that margins will be squeezed and many of the remaining book retailers will be run out of business or acquired. To me, this would be one of the biggest tragedies in the field of literature since the birth of Jeffrey Archer.

When I look back on how I acquired the modest level of knowledge I have,  school does not feature very prominently (although it was brilliant fun). I would spend literally days as a child, youth and not-so-youth hanging around my local library (where I was a one-time junior librarian) and major bookshops, picking books off the shelves and flicking (carefully) through them. As late as 2 weeks ago, I strolled aimlessly into a local bookshop and left with two great volumes that I had only vaguely heard of (I did remember to pay at the counter). While google and the rest largely compensates in the modern world for that random-walk of knowledge acquisition, the consumerization of the book market by Amazon and its friends has clearly negative connotations.

In our neighbourhood it is not always the distributors who are to blame for lack of available titles. Ask Salman Rushdie

In our neighbourhood it is not always the distributors who are to blame for lack of available titles. Ask Salman Rushdie

That is not to say that Amazon has not brought clear advantages too. Returning from Woody Allen’s delightful “Midnight in Paris” some time ago, I was able to lie in bed that very night reading Hemingway’s “A Moveable Feast” (on which the movie draws heavily) on my Kindle. Living, as I do, in the Middle East where supply of English language books is patchy to say the least , I would probably have had to wait months for a copy  if not for Amazon.

The House of Representatives would do well to tread carefully with this reform. At the same time the European Commission is currently dealing with a, not unconnected, VAT outrage perpetrated by the French government (who else?) and Luxembourg authorities (who are they?) offering cut-price VAT for e-sales within the European Union, benefiting most markedly none other than…. Amazon.

Reach for the sky

Dutch landscape. Anyone for Mars?

Dutch landscape. Anyone for Mars?

A  story  about a Dutch company that did the rounds of the world’s press on April 23 got me checking whether the Netherlands, ever the laid back pot-smoker of Europe, celebrated April Fools’ Day a few weeks late. In a grand press conference it was announced that candidates are invited to apply for a one-way ticket to Mars sometime in the next decade. The project is to be funded by  Reality TV rights. Welcome to the 21st century.

While Britain has a Royal Society for the Prevention of Cruelty to Animals, it does not have a Royal Society for the Prevention of Cruelty to Dumb Humans, so I was not surprised when the BBC World Service cornered their prey a few days later. It turned out that one of the first people to put their name down for the flight was a young man with a distinct Lancashire accent. Now, if you are not a Brit you should understand that, while the BBC World Service has (highly competent) presenters from Uganda, South Africa, Canada and South-East England, it does not have many Lancastrians on its books. Someone searching for a broad Lancs accent on the BBC would be better-off tuning into Premier League Darts or The World Snooker Championship. This is entirely unfair to natives of Lancashire who are, of course, every bit as intelligent as everybody else,  but it is an unfortunate urban fact.

Asked why he had applied, the Lancashire lad mentioned the appeal of Reality TV (OMYGOD) and then went on to talk of a new Frontier. At this point I clasped my steering wheel tight as I zoomed along the highway and braced myself for the inevitable G Force comment that was  about to pin me to the back of my seat. And it did. He calmly told the interviewer that he wanted “to boldly go where no man has gone before”. Aaagh!

Talking to Israeli tax officials over the last week, all that was missing was that ping-pong-ball-stuck-in-the-back-of-the-throat Lancashire accent. Included in the just released preliminary draft of the Government’s Omnibus Bill were the first significant adjustments to the international tax provisions of the Income Tax Ordinance in 10 years.  Listening to these highly intelligent people one could have been forgiven for thinking that they had just proposed the most radical shake-up of the tax law this side of the turn of the Millennium. A new frontier.

In reality, the amendment is less Starship Enterprise and more Apollo 13; less Captain Kirk on the ship’s panoramic deck and more Jack Swiggert trying to patch up the mess in the service module.

Come out with your tax opinions above your heads!

Come out with your tax opinions above your heads!

The main thrust of the proposal is in the area of CFC (Controlled Foreign Corporations) where many of the gaping holes in the legislation will be closed. As regards the fundamentals of the CFC regime,  on the one hand, the law will be expanded to include companies with more than a third (previously a half) passive turnover or profit while, on the other hand,  the CFC cut-off tax rate will be reduced to anything above 15% (currently 20%). The sad thing is that they did not use the opportunity for a clear re-think of the desirability of the law in its present format. It would have been nice to see some bold proposals rather than the S.W.A.T team peering nervously around every corner in search of possible tax avoidance schemes as they inch towards their target.

There is a change to the calculation of Foreign Personal Service Company income which closes a much abused loophole using companies in treaty countries, and a very controversial proposal to require new residents to report their foreign income. Under a 2008 amendment new and returning residents are exempt from tax on foreign income for 10 years. Until now they have also, perfectly reasonably, been exempt from reporting such exempt income. Perhaps not much longer.

But the daddy of them all is the proposed change to the 2006 Trust provisions. The Trust provisions have, since their inception, given rational  advisers a headache. They were a valiant and, largely successful, attempt to prevent tax avoidance but, in their over-enthusiasm, left Israel taxing foreign trusts when there was no connection to Israel not to mention other weird and wonderful outcomes.

The new provision, although  seeking to tax previously untaxed income from trusts settled by bona fide foreign residents,  offers a glimmer of hope regarding those trusts where a settler dies and all beneficiaries  depart for other shores.

Somebody has been reading the wrong book

Somebody has been reading the wrong book

The trouble is that, while they have had since 2006 to think about trust amendments,  the authorities have managed to come up with some of the most ill-conceived mis-drafting seen in years. Together with colleagues from other accounting and law firms, I have been trying to join the dots all week. It has been like trying to get a sleeping bag back in its sleeve – every time you think you are there, something bulges out somewhere else. Perhaps they would do well to take a leaf out of the Beatles’ book; it is said that they composed some of their best lyrics when they were stoned.

I am reminded of a Yiddish expression which, roughly translated, goes: “He spelt the word ‘Noah’ with seven mistakes”.

It will  be interesting to see if the authorities get all the bugs sorted out in  the formal draft. In the meantime: “Houston, we have a problem”.

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