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Archive for the month “August, 2013”

Georgia on my mind

Reagan proved adept at defeating Georgians

Reagan proved adept at defeating Georgians

When, on August 16,  I saw the announcement that Bert Lance had died, memories of the disappointments of that period of my life known as “coming-of-age” came flooding back.

Lance was a Georgian banker (born 82 years ago a little closer to Atlanta than Tbilisi) who took the train up from the South to Washington when Jimmy (pronounced Jimmuh) Carter insinuated his way into the White House in 1977. As the peanut farmer’s first, and short-lived (not literally, as you know), Director of the Office of Management and Budget he epitomized – along with fellow Georgians Ham Jordan and Jody Powell – the final decommissioning of Class in the capital. A bunch of, albeit intellectually competent, bumpkins – they and their boss (not to mention the boss’s mother and brother) ran roughshod over all that was held sacred in the undisputed Temple of the Western World.

For a late teenager just at the tipping point between childhood and adulthood, when a future as Prime Minister, Finance Minister or Chartered Accountant appeared equally feasible (but not, sadly – as I discovered in a Superman comic – President of the United States, which was reserved for Natural Born Americans that did not include either Clark Kent or me),  the disappointment from this Pol Potian destruction of the ruling class was mind numbing.

Well, just as the whole memory experience was making its way back on the slow train to the recesses of my mind, this morning I noticed an article in The Economist that made me instinctively slam on the brakes.

The Gambia, which for those of you who do not know, is a little sliver of a country in West Africa, has decided that it wants to be an International Financial Centre. IFC is a euphemism for that most heinous of tax  bogeymen – the Offshore Jurisdiction. This is, of course, chutzpa at its most naked. What makes the smallest nation on the continent, with per capita GDP of around $500, think it can satisfy the enhanced 21st century requirements of a successful (if there is still such a thing) Tax Haven?

I may have a few possible answers.

At least there are no sharks on the banks of the Gambia River

At least there are no sharks on the banks of the Gambia River

While the Gambia does not have a plethora of retired bankers, lawyers and accountants like the Channel Islands, it does have lots of peanut farmers. In fact, the economy is built on tourism and peanuts. If the patron saint of peanut farmers – St James Earl Carter III, along with a banker or two to peanut farmers,  could make it to the top of the world, why could they not , at least, achieve modest success in the international financial markets?

Furthermore, watching all those dramas and documentaries about the centre of the financial world – the City of London – it would have not been lost on Gambian leaders that the protagonists are always in offices overlooking the River Thames. A little-known fact about the Gambia is that the entire country is, in fact, one long riverbank (or, to be more precise, two long riverbanks) – the river in question being, you guessed it, the Gambia. What could be more natural than for the world’s newest financial centre to be one long (or two long) impersonations of the City of London.

In fact, as The Economist sanely points out, the Gambia’s chances of success are pretty slim. Offshore Financial Centres are under increasing scrutiny and pressure from the international community. In the end, it will only be those with substantial professional infrastruture and minimum political risk  (such as the Channel Islands) that are likely to survive in one form or another.

Real heroes use their real names

Real heroes use their real names

Jimmy Carter, Bert Lance and friends certainly managed to knock out of me any political delusions of grandeur I may have had. In fairness, it didn’t help that the boss on the other (my) side of the Atlantic was a chap by the name of James (pronounced ‘Jim’) Callaghan who had all the charisma of the former Inland Revenue Union official he was.

Ironically,  Bert Lance has accompanied me throughout my career, much to the detriment of my monthly timesheet. He is attributed with popularizing the term “If it ain’t broke, don’t fix it” that became one of my professional principles. Some advisers would say I am nuts.

Till IRS Do Us Part

Now I know why they needed 15 in the gang. What genius.

Now I know why they needed 15 in the gang. What genius.

My first coherent memory is of an event  50 years ago this month when Ronnie Biggs and his South London mates pulled off the Great Train Robbery – a straight, plain vanilla crime involving stopping a mail train (hence the title), coshing the poor driver and making off with the booty (two and a half million pounds) to a nearby farmhouse. Simple, really. Since then, of course, crime has become more globally sophisticated – drugs, people-trafficking, money-laundering, electronic fraud – you name it, they’ve done it.

International tax has followed the same slippery slope of sophistication in recent generations. When I first committed International Tax Planning, I drew a load of boxes, triangles and circles with connecting lines on a flip-chart and then used a different coloured pen to move them around the sheet and, hence, the world. It was easy and mechanical. You could invest from England in Belgium via Singapore at the stroke of a pen – a feat even Freddie Laker’s discount Skytrain airline  couldn’t match. The fun really started when I mixed the boxes and triangles forming “hybrid” things which clients just gaped at in awe. Although professionals paid lip-service to ‘substance’, that was something people generally associated with drug abuse and ignored accordingly.

I knew things were going awry when I first joined a team presenting the preliminary results of a TESCM (Tax Efficient Supply Chain Management) project in Amsterdam. Our proposal was to move the European Headquarters of a multinational client from the Netherlands to Switzerland. By now, instead of the flip-chart we had a super-impressive Powerpoint presentation. We also had an audience of Dutch senior managers who had no intention of abandoning the Low Lands for the Alps and related to us accordingly. Substance was now, partially, something called People – and people didn’t conveniently fit into boxes unless they happened to be dead. And dead people don’t make good corporate tax planning tools.

International tax has been a gradually accelerating people-centric roller-coaster ever since. We, emotionally stunted, tax advisers are not really built for this but we attend courses on how to be human and learn to cope. The OECD is now busy placing stress on “People Functions” in establishing where profits should reside, which means that, in future, companies will either have to pay more tax or their managers will need to live in increasingly remote corners of the Globe.

In a world where substance is everything, American multinationals in particular have been scrambling to find the solution to their international tax problems. While, long before the people obsession, many countries included “business purpose” as a sine qua non for sufficient substance in not disregarding a transaction, in the past satisfactory responses  often fell into the philosophical category of “I like it ‘cos it’s good”.

Well, in recent years, things have been tightening up and last month the Barnes Group got hammered by a US Tax Court for establishing uninhabited companies in Delaware and Bermuda in a complex tax-free cash repatriation plan the business purpose of which it could not adequately explain.

So, in this increasingly sophisticated and strangling world, where lack of people and business purpose threaten to thwart the best-laid plans,  what are US tax advisors supposed to do?  With more than a nod to Hollywood, enter touchy, feely, international tax planning 2013 style.

She and I were born a week apart and she still looks nearly as young as me

She and I were born a week apart and she still looks nearly as young as me

Over the last quarter century, Hollywood has produced at least two blockbuster movies on the subject of immigration through marriage of convenience. The most recent was “The Proposal” with Sandra Bullock, but the more successful was  “Green Card” starring Andie McDowell ( I am always reminded of Dorothy Parker’s comment about Katherine Hepburn: “She ran the whole gamut of emotions from A to B”) and that Russian patriot with a French name (and French everything else),  Gerard Depardieu. In both movies the couples were interrogated by immigration officials under threat of being thrown to the dogs if their intentions were revealed to be less than honourable. In both cases they were found out, only to subsequently fall hopelessly in love.

At the same time as the Barnes Group was being burnt at the stake, Perrigo, a US provider of healthcare products announced  a merger with Elan, a much smaller Irish biotech company. The new company established to effect the merger will be an Irish Co with the name….waitforit….Perrigo.

Despite the fact that the two companies are both in healthcare, they produce entirely different products. What they are set to produce going forward are significant tax savings as Perrigo successfully inverts part of its operations beyond the clutches of the horrific US tax system. While decade-old anti-inversion rules have successfully slowed the expatriation of US companies, IRS expatriation officials will presumably have little to say when Perrigo and Elan can successfully show they are in bed together. But is this true love? Who knows? Certainly not the IRS.

Did you know that Phil Collins could also act?

Did you know that Phil Collins could also act?

I often look back nostalgically on the good old days when tax planning was simple and everything was possible.  As a young professional I used to regularly pass through Waterloo Station on the way back from lecturing courses. As I dashed from the Main Line platform I would pass a well endowed flower stall manned by a cheery fellow from South London.  The fragrant smell of the flowers and his friendly manner always gave me a good-to-be-alive-and-young lift. I later learned that the florist’s name was Buster Edwards. In an earlier life he had been one of the Great Train Robbers. Simple, really.

Judge for yourself

Practicing for next term of office?

Practicing for next term of office?

Silvio Berlusconi has a mission. Having already successfully nobbled two branches of government – the executive and legislature – he is out gunning for the third.

In a speech that in any other country would have had him up in front of the Beak accused of incitement, the newly convicted (this one’s for tax evasion) former Italian Crime Minister earlier this month went as far as to say that the judiciary that had convicted him exercised “the worst power – the power to deny someone their freedom”.

Now Silvio, darling, I know you are the latest in a long line of Italians the likes of Julius Caesar, Pope Alexander (Borgia) and Benito Mussolini who, shall we say, were born without the rule of law gene, but what do you really think all those judges are for if not to deny people’s freedom?

I really do think you are missing the point when you decry such  treatment of “someone who has given 20 years of his life to the nation”. Dear boy, you are not supposed to be above the law just because you were Chief Clown. Your sentence is something of a joke – because you are 76 years old and have had some modest success in buggering up the country’s laws during your three terms in charge, you are facing one year of house arrest or community service. You probably have an estate the size of Milan and, anyway, what community service is a 76 year old fit for (don’t answer that – you are being tried separately for that nonsense) ?

Watching Berlusconi’s privately produced video following the conviction, it occurred to me just how inadequate simultaneous translations are, and how difficult is the task now facing the OECD following its new mammoth commission from the G20 to clean up the world’s tax act in time for tomorrow morning’s  breakfast.

Mr Berlusconi, sitting at a desk with a backdrop of flags fit for a Duce, looked – thanks to the AC Milan boss’s season ticket to the cosmetic surgeon – like a cross between Pinocchio and Barbie’s boyfriend, Ken. Trying to understand what he was about was not just a matter of the inevitable lipsynch problems of English words crowding out the Italian pouring from his mouth. The man’s logic and body language were totally incomprehensible to a Brit like me, despite my substantial Mediterranean connections.

Same agency that dealt with the tax evasion issue?

Same agency that dealt with the tax evasion issue?

Around the same time Messrs Dolce and Gabbana, who I assume require no introduction among the refined readership of this modest blog, reacted to their own tax evasion (yawn!) conviction with  a full-page advertisement in the world’s press protesting their innocence (or something like that) accompanied by all sorts of data. Now I, as a Brit and despite my substantial Mediterranean connections AND a career in tax accounting, did not understand a damned word.

Yet,  neither Mr Berlusconi nor the luxury goods pair are stupid. And, even if they are, their PR people surely cannot be? My conclusion is that Mr Berlusconi’s advisers knew their Italian audience who view the whole Berlusconi saga in a different light to the rest of us (let’s face it, they elected him 3 times), while Dolce and Gabbana’s Italian advisers are, sadly, stupid.

According to my Atlas he was also an Italian

According to my Atlas he was also an Italian

This all brings me to the conclusion that the OECD is on a hiding to nowhere. Thanks to sheer American bullying power, there will be some progress in such areas as Exchange of Information but much of the 15 point plan (see last Post) is going to get mired in disagreements over different value systems. As the northern hemisphere celebrates the centenary of the last summer before the old world got taken to the laundry, that is hardly surprising.

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