Tax Break

John Fisher, international tax consultant

Archive for the month “September, 2013”

Obama, Join The Circus!

English hero

English hero

I read everything that John Le Carre ever wrote until he, like Paul Simon, went African. His Cold War novels had me chained to the page.  Who could forget the very end of the Quest for Karla Trilogy as Smiley’s People, the last in the series, draws to a close? Spoiler Alert – you may be about to kiss farewell for all eternity to the chance to savour not one, but three truly amazing books. Karla, the Soviet superspy defects across a Berlin foot-bridge  and, as he passes his nemesis George Smiley,  drops the gold lighter that had been a gift to Smiley from his estranged wife.

I had that scene on my mind as I flew in yesterday to Schonefeld Airport in the former East Berlin. The last time I was in Berlin, in the middle of the last decade, Schonefeld was a really ugly Soviet- era airport, with the exclusive El Al terminal guarded by a friendly working tank, its gun trained a little too keenly on the airport approach road. Today it is a really ugly Merkel-era airport without the tank but with Aeroflot planes parked next to their Israeli counterparts – the times they are a-changin’.

I had spent the flight reading the OECD’s latest “Revised Discussion Draft on Transfer Pricing Aspects of Intangibles” with an umpteenth review of the “Action Plan on Base Erosion and Profit Shifting” for dessert. And what could turn a man’s thoughts to espionage more effectively than that?

For those of you who did not lay siege to the OECD Headquarters at the end of July salivating over a copy  of Working Party No 6’s said Revised Discussion Draft,  let me put your minds at rest – you didn’t miss much. It is, to be fair, a highly competent document that deals quite courageously with  identifying intangibles and the surrounding transfer pricing issues – looking very closely at value creation in the functional analysis, establishing that effort trumps legal ownership so that you really cannot ignore “people” when planning your tax. A healthily suspect view of the allocation of risk between group companies is also clear to the naked eye and then there is that long list of examples that aims (but fails) to clarify the meaning of the document.

The less exciting  BEPS

The less exciting BEPS

The Revised Discussion Draft also segues admirably into the “BEPS” – the unfortunate acronym for the Action Plan on Base Erosion and Profit Shifting as opposed to a new tablet for dyspepsia – where International Tax and Transfer Pricing are given the Billy Graham/Pat Robertson  treatment on the moral responsibility of soulless companies to pay lots of tax even if they are not legally required to do so.

Aye, and there’s the rub. The future of the, undoubtedly dysfunctional, international tax system rests on a Kamakaze academic study (circles the target brilliantly but doesn’t tell you how to land) and a poor Bible Belt impersonation from a group of world leaders who are not even capable of saying “Boo!” to Syrian government atrocities.

Perhaps they should have recruited George Smiley. Le Carre fans will recall that Smiley was an unlikely hero. Looking the spitting image of kindly old Alec Guinness (even Le Carre seems to have thought so), he quietly paced the corridors of the Circus (sort-of-Langley to you Americans out there), frequently displaying the moral highground in his own inimitable way as he devised and practiced his craft.

But when it came to Karla – his Public Enemy No 1 –  George went for the oldest and dirtiest trick in the book. He had him blackmailed. That brought him over to the West with his stash of secrets. Smiley didn’t celebrate – it was all too complicated (including that gold lighter) and not cricket – but the job was done.

Now, in case there is any confusion, I am not suggesting a J Edgar Hoover style campaign against MNE CEOs across the Globe nor, for that matter, a J Edgar Hoover style campaign against international tax advisors across the Globe, the latter being far too close to home (however far across the Globe) for my personal comfort.

What IS needed is for a handful of the world’s leading nations (a euphemism for the United States) to quietly steamroller a New World Order using the strong-arm tactics at their disposal – as they did on FATCA. The result will be far from perfect, but it will be a result and inevitably far better than the current proposals most of which will be mired in years of debate and disagreement.

American hero

American hero

I read once that, after the fall of the Berlin Wall, Markus Wolf, the head of the East German Stasi, was asked what he thought of Le Carre’s books, (contrary to widespread rumour, Le Carre has repeatedly denied that he was the model for Karla) . He is reported to have said that he wanted to meet the author in order to put him right on a number of things.  Few would argue that, even if Tinker Tailor Soldier Spy, The Honourable Schoolboy and Smiley’s People were not 100% accurate (who knows?) the world would not have been a poorer place without them.  Obama needs to be persuaded for once not to go for the Excellent (which, in foreign policy terms, he invariably misses by a mile) but just for the plain, imperfect Good. He needs to act. Who knows, he might even get it right?

What’s in a name?

View Of A Pig

View Of A Pig

The first poem I studied in secondary school began: “The pig lay on a barrow dead, motionless”. Poet Laureate Ted Hughes’ ensuing nine sickeningly graphic, non-rhyming stanzas made me want to vomit and scuppered any chance that Wordsworth, Byron or Shelley might offer the  key to my romantic soul.

It was not surprising, therefore, that the death of Nobel Laureate Seamus Heaney a few weeks ago caused nothing but a slight flutter in the iambic pentameter of my heart.

Heaney,  like  many modern poets who had studied the works of William McGonnagal – the world’s worst practitioner of the art – did not feel constrained by the need for the perfect rhyme-ending. He would happily plump for the partial rhyming of assonance (rhyming vowels) such as: “Between my finger and my thumb/ The squat pen rests; snug as a gun” or consonance, which is the same concept but with the consonants matching rather than the vowels: “We trekked and picked until the cans were full”. Assonance and consonance are, evidently, great ways to get a message across into the readers subconscious. Had I started my poetry appreciation career with Wordsworth’s “On Westminster Bridge” rather than Hughes’ pigswill, I might now be in a position to explain this – but I didn’t so I aint.

In recent years the heavily oil dependent economies of the western world have been energized by the development of “FRACKING” – the hydraulic fracturing of underground rock formations by the high-powered injection of water and other liquids to free enormous quantities of shale gas and oil. The Americans, particularly, have discovered that by widespread FRACKING they can raise the proverbial digit to the medieval dictatorships of the Middle East who have, for 40 years, been able to periodically  hold the world to ransom for a barrel of the black elixir. FRACKING is helping to fuel  the US economic recovery.

What is interesting is that  British hunting for shale gas has been less successful than in America. This has been largely due to greater public discourse on the subject and a much more significant populist backlash than across the Atlantic.

The Economist ran a leader a couple of weeks ago on the successful protests in a South East English village against FRACKING. Objections are based on environmental issues – there is a fear of greenhouse gas emissions and water pollution (not to mention earthquakes and the implosion of the earth’s crust), as well as the disruption caused by the diviners. The free-market Economist dismissed the environmental thing as balderdash (and who am I to argue?) but chose to understand the NIMBY (Not In My Back Yard) argument.

The neighbours make less of a fuss about this

The neighbours make less of a fuss about this

The reason FRACKING has worked in America, the Economist claims, is that landowners own the rights to what is under their fields and the States (rather than the Federal Government) tax the extracted oil and gas – pumping the revenue back into the local economy.  In Britain the State (strictly, the Crown, which is the thing the Queen wears on her head sometimes) owns the rights and almost all tax revenue flows to the central government coffers. Thus, the NIMBYs do not feel any advantage rising from the ashes of their disadvantage. As with so much else in the Tax Conundrum, ordinary people need to feel ownership of their taxation  – be it fracking, health care, education or bombing Syria – to make the system work. For once, the British should take a leaf out of the Americans’ book.

However, I think there is more to it than that. What’s in a name? For a word that does not officially exist (you try and find it in a respectable dictionary), FRACKING has penetrated the English language most effectively. In its various fictitious forms it is a noun, a transitive verb, an intransitive verb and, even, an adjective, closely shadowing its most infamous consonantal relative.

To the delight of the protesters, FRACKING even has a construction as a phrasal verb in the imperative  form followed by a particle. As a result, the protesters have been winning support waving banners with a short, punchy message that gives  more bang for its buck.  For those of you who spent your time in school studying the various metres in English Verse rather than English Grammar, the imperative in this case is FRACK and the “particle” is “OFF”. A hyphen between the two words is optional.  By association, FRACK is not a nice word, FRACKERS are not perceived as nice people and, as for FRACKING – absolutely “Not In My Back Yard”.

Perhaps the Power of Speech has taken on a new meaning.  Could it be that Consonance is helping to screw up the recovery of the British economy?

Reindeer in the headlines

What is a Volvo doing in Norway?

What is a Volvo doing in Norway?

Oslo is not the capital of Sweden, and that nice King Harald, who has his photograph taken once a year handing out coveted prizes to clever people, is not the King of Sweden. Harald is King of Norway, which is just as well really as he lives in Oslo which is the capital of Norway (and not Sweden).

If that sounds obvious to you, you may not want to read on – but before you go answer this : “What is the name of the outgoing Prime Minister of Norway who has held the post for the last 8 years?” …GOTCHA! Whoever he is, his name is no longer worth remembering because he was trounced the other day by the incoming Prime Minister (Male or Female?). And, without stopping to think: “Norway is a member of the EU, True or False?”

I am glad you decided to stay. You see, Norway is one of those countries that everybody is vague about, probably because it is stuck up there in the forgotten attic of the world and it is bloody cold.

Mr Stoltenberg preparing recently for his  new career as a taxi driver

Mr Stoltenberg preparing recently for his new career as a taxi driver

What is interesting is that socialist Jens Stoltenberg lost the election despite Norway having the second highest per capita GDP in the world (only beaten by that “Ode To A French National Car Park” – Luxembourg) and unemployment of three point something per cent. It appears that, far from being driven by a desire to move from a welfare state to a more competitive one (Ms Erna Stolberg, the next Prime Minister, is a conservative), Norway’s 5 million citizens were simply bored looking at the same face for 8 years. You might think that they are also bored sitting around sweating in Saunas – but that is in Finland which is not in Norway.

What successive Norwegian governments, and Mr Stoltenberg’s in particular, have done exceedingly well, is solve  the demographic problem Norway shares with most of the western world. In order to finance an increasingly aged population, western countries  need population growth and increased productivity. The world is expected to reach its maximum sustainable population statistic sometime later this century, at which point it will be time to hop on the last VIrgin Galactic flight to Mars.

Norwegian governments, rather than squander all the oil and gas revenues collected from  Statoil, the giant state-controlled company, as well as taxes, licences and royalties from operators, chose to establish a Sovereign Wealth Fund instead. By effectively dampening demand, Norwegian living standards were restricted (Norwegians are, after all, less rich than the Luxembourgians) in the name of a future bonanza.

The Norwegians understood that this guy doesn't do pensions

The Norwegians understood that this guy doesn’t do pensions

Norway does not need a baby boom to ensure its pensioners are looked after – they will benefit from the fruits of their diversified investments around the globe  (by some estimates the SWF owns 1% of traded shares worldwide). Were the western world to do this more systematically  western pensions would be financed by increased productivity in the developing world and, around the time that Virgin Galactic flight is taking to the skies, there would be less frantic worldwide demand accompanied by equilibrium in the world economy. And there would still be plenty of Norwegian Smoked Salmon to go round.

Then, perhaps, King Harald’s descendant would present the Nobel Prize for Economics to Norway – if he could find where it is on the map.

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