Tax Break

John Fisher, international tax consultant

Archive for the month “November, 2013”

“Keep it short”

boring-computer“Five score and one posts ago my father’s son brought forth on this medium a new blog….” I could continue with the topical parody (last Tuesday marked 150 years since the original), but you get the picture, so I won’t.

100 posts is a time for reflection. It was my wife who encouraged me to give it a go in the waning days of 2011 and it is that same wife who never tires of telling me that the posts are too long. “You are an old bore”, she cautions me. “These days people don’ t have patience for that kind of thing, so keep it short”.

Old Bore? The three most enjoyable evenings I have spent in the last five years were, in no specific order: sitting in the front row of a  recording of BBC Radio’s “I’m Sorry I Haven’t A Clue” – average age of cast, 75; seeing Garrison Keillor in a one-man show at a converted church in Kensington – average (and total) age of cast, 67; and attending a  Broadway performance of Jersey Boys – average age of cast unknown but it was about Frankie Valli and the Four Seasons whose average age is problematic because one of them is dead. I suppose, my wife has a point.

On the other hand, what is wrong with being an old bore?

Is this blog likely to achieve more hits if I write pithy ten-liners, adding pyrotechnics and grainy pictures of a totally bald me in thick-rimmed, cool spectacles? Methinks, not.

But, if any of you out there in the ether (and I know you are there) think differently, just this once leave a comment.

modern abeThat was, I think, the length my wife has been getting at. The problem is that I succeeded in writing absolutely ‘nada’. The bigger problem is that it is exactly the same length (270 words) as Lincoln’s Gettysburg Address, widely considered one of the greatest speeches in history. And you can’t get more Old Borish than having a beard and being dead for 150 years, can you?

Dallas, Taxus

"The Kennedys"

“The Kennedys”

According to a study in the influential “British Medical Journal”, if you are looking for a safe profession (leaving aside Accountant or Lawyer), you would be better advised to plump for Bomb Disposal Expert or Formula 1 Racing Driver than Soap Opera Star. The BMJ informs us that characters in these B-TV sagas have three times the normal mortality rate across age groups. Taken together with the other essential ingredients of a Soap – halting scripts, multiple rambling semi-plausible plots, and the occasional totally implausible shock occurrence (remember when the entire 9th series of Dallas turned out to be a dream?) – “The Kennedys” could have easily qualified for a grant from the Soap Opera Arts Council.

With newsprint and screens currently full of the  tragic moment in Dallas  exactly 50 years ago next Friday, my unhinged thoughts drifted unwittingly to other Reality Soaps and, particularly, those of the Taxploitation Genre.

The ink is not yet dry on the OECD Base Erosion and Profit Shifting Action Plan and hurriedly drafted scripts, including those of various tax authorities, are already prophesying the impossibility of reforming the taxation of the digital economy, which is so essential. Flashbacks remind us that the whole international tax mess started after the First World War, when  the Gentlemen’s Club of Europe and America decided that taxation should follow residence – so that profits did not remain in the hands of the off-screen Colonial extras who had their hands on  the raw materials , but flowed up to the stars at centre-stage.

The public and their governments now scream that , with the onset of internet maturity,  it is time to upset the digital world order – a rare Soap moment calling for  Tax Armageddon. Surely the time has come to look more closely at where transactions are being consummated –  recognizing that data-collection should be taxable where the data is collected?  But no, it is noted that there is absolute connectivity between the digital and old  economies – if we change digital, we have to change everything – and that exclusive Gentlemen’s Club seems to be saying: “That will not do. We cannot flash the bat outside the left stump”. They prefer to carry on with the same script tweaking it over the long-term trying to achieve governments’ stated goals.

Marilyn is far left, Carlos is far right (he was, after all, from Franco's Spain)

Marilyn is far left, Carlos is far right (he was, after all, from Franco’s Spain)

This brought back memories of my favourite soap during my formative years – the low-budget, cardboard-walled “Crossroads” about a Midlands Motel, which ran without interruption from 1964 to 1988. In its early years it followed all the normal rules until, in 1968, sometime around the assassination of RFK, the scriptwriter must have had enough of writing his daily drivel. In an act of devilish inspiration, and right under the noses of the sleeping producers, he decided to marry-off the extremely “working-class” Motel waitress, Marilyn Gates, to the local vicar, Peter Hope. I can picture the scriptwriter the night before the announcement  (episodes were filmed in a single take) on a bender in his cheap hotel (motel?) room, poring over the ubiquitous Gideons’ Bible hoping for an epiphany,  hitting on the enigmatic Mary Magdalene, and the deed was done.

When the producers woke up and realized that, while evolution is the thing with Soap Scripts, this one was going to end in tears, they probably did contemplate contributing to the statistics on which that BMJ article was based. However, they had a problem. Only a few weeks previously they had killed off Carlos, the beloved Spanish Chef who died saving children from a burning Orphanage. Another cardinal rule of Soaps is – you can’t kill people off too often; (they may have killed off the scriptwriter, but he would not have been missed unless he was planning the first Miss Crossroads competition for the Christmas special.) The solution was, literally, unbelievable. With the raising of a middle-digit to their intellectually superior viewers (including 10-year-old me),  one bright evening a few months after the wedding the episode opened with an announcement: “From today, there is a new Marilyn Hope” and, in keeping with the miracles promised by her Faith,  the said Marilyn Hope appeared as a prissy, blue-stockinged, Queen’s English-speaking, Vicar’s wife…….and they all lived happily ever after (or, at least, until they were buried by budgetary cuts in 1988).

And that is what the scriptwriters of the tax world might be trying to do to their governments and  us. Cornered in a dead-end without a feasible storyline, instead of bumping off the entire cast, they may just try and dress digital taxation up in a different pair of stockings (a bit of consumer jurisdiction VAT here, a service Permanent Establishment there).

john_f__kennedyOne cold Tuesday afternoon a few years back, I stood shivering on the Grassy Knoll. It was one of the most unremarkable places I have ever made a special point of visiting. Apart from the anonymously named “Sixth Floor Museum” behind me, the only indication of what happened that terrible Friday were two metal studs in the approach road marking where the bullets hit. Whatever Kennedy was, or wasn’t, he inspired new frontiers. The Tax World could do with another JFK right now. Obama’s policy wonks and speechwriters should get to work on their laptops.

Shooting at goal

I would have voted for him

I would have voted for him

I love municipal elections. Two weeks ago the incumbent mayor of my sleepy town (population 70,000 – the locals insist on calling it a city even though they would not fill Wembley Stadium) was lawnmowered into political oblivion by his predecessor, who decided to stand for the only apparent reason that he could not think of anything better to do.

The local political scene is the crucible of pork belly politics – nothing, but nothing, gets done for four and a half years of a five year term and then, miraculously, the new kindergartens appear, the children’s playgrounds swap dooda infested sand for state-of-the-art rubber and the garbage collectors start churning the rubbish three times a week instead of two.

Years ago I went to my one-and-only parlour meeting. To the abject horror of the assembled Ra Ra girls and their compliantly docile husbands, I dared to ask the ineffable: “Why did you not deliver on your promises in the last election?” Without flinching, the porcine head of the party we were expected to vote for looked me straight in the eye and retorted: “Because I am a politician”. A liar who had the honesty to tell the truth. I voted for him.

Mr Magoo

Mr Magoo

I do wish President Popularity-Disappearing-Up-His-Derrière had a little more guile. I don’t think the actions of France’s First Citizen are the result of unswerving honesty; rather, they fuel the suspicion that he is Forrest Gump, Mr Magoo and Chance the Gardener rolled into one.  His latest gaffe was to persist with his election-promised  75% marginal tax rate for the wealthy  even after the courts had deemed it unconstitutional. Any normal human being not desperately chasing a single digit approval rating would have grabbed the chance to dump the idiotic proposal and blame the judiciary. Not Francois the Great. Similar to the Irish prisoner who showed his executioner why the guillotine was jamming, he curved the ball around the constitution and proceeded to pronounce that, subject to parliamentary approval,  the  two-year 75% tax rate on the estimated 1,500 individuals earning more than a million euros still left in France will now be levied on the companies paying the salaries. Plus ça change, plus c’est la même chose.

Income taxes should achieve one of two things – either be neutral in their effect on the economic decision-making process, or redistribute income to the less well-off. President Einstein’s plans boldly seek to achieve neither. Many wealthy individuals have buggered off to Belgium (one or two via Russia) while even a 110% tax on the earnings of 1,500 individuals does not a balanced budget make.

To add insult to injury, it turns out that an awfully disproportionate share of the 75%  burden will fall on the unavoidably labour-intensive football league. The soccer supremos  had been keeping schtum since the announcement of the revised tax back in March because they assumed that they would be exempt (this was, after all, a tax aimed at fatcat businessmen). It now transpires that the major clubs will need to pump-up their already obscenely high salary costs since the players cannot realistically kick off to Bruges. The threat of a weekend-long shut-down (not a WHOLE weekend, surely?) at the end of November has failed to move the tumbrel chasing population of France who still remember the last time French football closed down – on the pitch at the 2010 World Cup.

Trawling the Parisian sewers  of the internet (even the stuff in French, in case there was information hiding there) I could not find a single explanation of exactly how this bombshell of a tax is to be calculated. My hunch (and it is no more than a hunch) is that the employer will simply make up the difference between the employee’s marginal rate (currently an effective 49% including surcharge) and the 75% rate. If that is the case, the damage is a hell of a lot less than 75%. For example, take a fictitious player – Xenophobia Burka of FC Beaujolais in Ligue 1 who gets €2 million a year for kicking a leather-encased pig’s bladder around a large, enclosed garden which does not even have a flower-bed.  His second million is currently liable to 49% tax (for simplicity, let’s call it 50%) , which means he currently takes home € 500,000. If his employer, FC Beaujolais, is required to pay 25% (the difference between 75% and 50%) on the second million, that is an additional € 250,000. This implies an effective marginal tax rate to the employee of 60% (his net pay of € 500,000 is 40% of € 1,250,000)  although, in this case, the entire burden falls on the employer – an approximate 16% penalty after expensing for corporate tax purposes – a lot less frightening than the 75% headlines.

Alternatively, if under their contract the club could pass the tax cost on to Burka, the second million would come down to € 800,000 (the employer would pay 25% tax on that bringing the cost up to a round million) and Burka would take home € 400,000 – effectively 60% marginal tax again. Given that the enhanced tax rate is only to apply for 2 years, this is hardly a reason to sell the Ferrari.

Is the Great French Football Tradition about to be consigned to the history books?

Is the Great French Football Tradition about to be consigned to the history books?

If I have got this wrong and President We-Will-Never-Win-Another-World-Cup-As-Long-As-I-Can-Help-It really does intend to put the boot in with full gross-ups for the 75% calculation, assuming player contracts are sacrosanct, it looks like the teams of the Ligue really might have to hang up their boots. That would be yet another magnificent Own Goal for the President of the Fifth Republic. Keep ’em coming, Frankie.

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