Tax Break

Who said tax is boring?

Archive for the month “February, 2014”

No flies on them, mate

Some people will go to extreme lengths not to visit Australia

Some people will go to extreme lengths not to visit Australia

Filling in the immigration card at the start of the descent into Melbourne International Airport earlier this week, I could not help but chuckle as I checked the “No” box against the question “Do you have any criminal convictions?”  I was unavoidably reminded of that hackneyed joke, attributed to the late Tony Hancock and especially popular among up-ourselves Poms, who is reputed to have answered: “I didn’t know it was still a prerequisite”.

One of the purposes of my visit to Australia is to speak at various events on the topic of the Business and Taxation Environment in Israel. As, a few weeks prior to my trip, a senior Israeli Government Minister had done the rounds here, I decided to ask him what he had spoken about. “Business and Zionism – I avoided politics.” When I replied to his enquiry as to my subject: “Taxation”, he slapped me on the back and suggested that perhaps I should speak about politics.

Remarkably, in the three weeks since preparing my presentations for the visit there have been no less than two momentous events directly affecting the taxation environment in Israel as well as an indirect one. Luckily, my powerpoint slides and the bloke talking around them, are sufficiently vague for nobody to have yet noticed the hurriedly shoe-horned bits. But the trip is yet young.

Just trying to do the right thing

Just trying to do the right thing

First off was a proposed amendment to the Income Tax Ordinance, tabled in the Knesset on January 29, that – if, and when passed – will empower the Income Tax Authority to demand automatic supply of information on  foreign residents’  income in Israel (primarily from financial institutions) and allow its voluntary transfer to foreign tax authorities on the basis of an international agreement that is not necessarily, as at present, a double taxation agreement. This, of course, smells of the brown-nosing that in school earned a thoroughly deserved duffing-up behind the bicycle shed by ones classmates. But the Israeli authorities are only bowing to the inevitable pressure from the G20 and OECD to ensure worldwide automatic exchange of information – one of the main tools in the international fight against tax evasion.  Passage of the law will pave the way for Israel to become the umpteenth signatory of the OECD’s sexily named “Multilateral Convention On Mutual Aministrative Assistance In Tax Matters” (MCOMAAITM…just kidding), which provides a legal basis for countries to agree on the said automatic exchange of information.

Confirming the timeliness of the Israeli move, on February 13 the OECD met its deadline to provide “A Standard for Automatic Exchange of Financial Account Information” (ASFAEOFAI….never mind) in time for the meeting of G20 Finance Ministers and Central Bank Governors on February 22 – 23 in Sydney (where I hopefully arrive just as they are leaving – it is all in the timing). This standard is based on the US FATCA rules and, when implemented either through bilateral or multilateral agreement, will require financial institutions to do those things the Israeli proposed legislation aims to facilitate. Automatic exchange of information will not be required where the other party does not reciprocate (you scratch my back and I’ll scratch yours) or where the other side is unable or unwilling to guaranty secrecy (being a brown-nose is one thing, but never a sneak).

However,  perhaps the most momentous event came to light early this morning (which was yesterday in Israel). I awoke to discover that an eminent  Tax Lawyer-friend with whom I had worked closely until I boarded a flight for Hong Kong last Sunday evening,  had been appointed a District Judge along with another equally eminent Tax Lawyer who was not a friend and with whom I had not worked closely at any time before boarding that flight for Hong Kong last Sunday evening.  It is evidently rare in Israel for partners in Law firms to be appointed directly to a senior court – but this reflects a welcome seriousness of purpose on the part of the Israeli authorities and raises the bar on the professionalism of the judiciary in deciding tax matters.

Another way of dealing with the latest mad-cap trust legislation

Another way of dealing with the latest mad-cap trust legislation

All in all, when I started preparing my presentations in January the Tax Environment was looking far more mature than at any point I can remember. The events of the last three weeks have only enhanced that position. There is, however, one exception: the new mad-cap trust legislation – concocted by the Tax Authority –  that came into force on January 1. The amended law needs to be placed on a convict ship and transported to Australia, never to return.  While I have every respect for the officers of the Income Tax Authority, it would not be a crime if one day the Finance Ministry were to take a leaf out of the Justice Ministry’s book and decide to appoint partners from major  law and accountancy firms to senior positions in the Tax Authority. After all, the present Australian Tax Commissioner is a retired partner of one of the Big 4. No prizes for guessing which one.

“Action!”

A supertramp is born

A supertramp is born

Eureka! A mere week shy of a century since Charlie Chaplin first stumbled onto the Silver Screen, the world’s Tax Supremos  finally discovered the wonders of  Moving Pictures. Watching the  OECD Centre for Tax Policy and Administration’s first webcast on Base Erosion and Profit Shifting  (BEPS) on January 23rd, there were times when I wished the new media stars had gone through the normal evolutionary process of testing the primordial soup with a Silent Movie.

This was gut-gripping stuff, dealing with progress on the now famous BEPS 15 point Action Plan endorsed last year by the G20 group of nations. It is an attempt to hammer the growing tendency to double non-taxation in international corporate tax planning which,until recently, starred the very silent Google, Amazon, Starbucks and Apple with various other companies in supporting roles. The CTPA was charged with an incredibly ambitious timetable to change whatever is in the hands of the OECD to change (Model Tax Conventions, Guidelines,  new Multilateral Instrument) and provide recommendations for whatever is not. If all goes to plan – and the webcast kept its audience glued to their iPads with optimism on this – the operatives of the CTPA will all be home in their beds in time for Christmas 2015. The boys in the trenches have heard that one before.

Tax people never used to look like this

Tax people never used to look like this

The broadcast had an international flavour. It was chaired by an American Carl Reiner lookalike with depressive touches of Woody Allen. His performance indicated that he was clearly aiming at an audition as AT&T’s next Speaking Clock. The four person panel sat in a row bolt upright reminiscent of a 1950’s election broadcast where the suspicious politician always looked scared he (it was almost invariably a he in those days) was going to be shot between the eyes by the strange thing pointing at him called the TV camera. The star of the show was the photogenic Director of the CTPA, Pascal Saint-Amans, sporting a Yasser Arafat five-day growth, chic suit and “I am going to seduce you with my French charm” thick-framed glasses. He was joined by the perfectly coiffed Raffaele Russo, head of the BEPS project, who was either talking to the wrong camera or thought he was lecturing to the sound-man standing a few feet to the right of the cameraman. Marlie de Ruiter, Head of Treaties Transfer Prices and Heaven knows what else,  added gender diversity to the proceedings and would have made a perfect partner for Saint-Amans in  ‘Strictly Come Dancing’.  Completing the line-up was Achim Pross, Head of the International Cooperation and Tax Administration Division, a middle-aged  natural bald who reminded us all that, at the end of the day, this was boring tax. The speakers had clearly been trained at the Katherine Hepburn school of drama; as Dorothy Parker said of her: “She ran the whole gamut of emotions from A to B”. Before recording ‘BEPS – The Sequel’, they should watch a few Egyptian Soap Operas where nothing moves EXCEPT the faces.

Nice place for BEPS & Breakfast

Nice place for BEPS & Breakfast

This was, of course, bureaucracy par excellence. We heard about task forces, programmes, global fora (no fauna), public consultations, white papers, questionnaires, discussion drafts and – could international organizations live without them – meetings in exotic places. There were acronyms (not finding HTP in the Action Plan’s glossary, I googled it to discover that the only reference was the document I was trying to decipher – go figure), diagnoses, deadlines, reporting templates and working parties. What there was not, was any talk about anything concrete actually happening (no worries, the first deadline is eons away in September this year).  As to  bringing on board any countries other than the 34 rich-world members of the OECD and stray members of the G20 – the only mention was of Latvia and Colombia which, I assume I have understood incorrectly, now represent that hard-to-put-your-finger-on-it “Rest of the World”.

A promising star in the firmament could be Australia’s Tony Abbott – this year’s chairman of the G20. Refreshingly the Aussies have no time for European sophistry  (they would probably use another word) and Abbott has already said he doesn’t want a talkfest (that was not the word I had in mind and, what is more, it doesn’t actually exist). If he can get Obama on board – and with all the Action Plans and Acronyms it is still the Americans that set rules as has been obvious with FATCA – there could be interesting developments in 2014. Otherwise, that first tax broadcast being almost exactly a hundred years on from Chaplin’s debut may prove more than a coincidence. Chaplin’s film was “Making a Living” in which he played a swindler pursued by the incompetent Keystone Cops.

Near-Death Of A Salesman

Every one a goer!

Every one a goer!

I  am prejudiced against salesmen. Shop salesmen. Company salesmen. Door-to-door salesmen. You name ’em, I’m prejudiced against ’em. I am not proud of the fact and sincerely apologise to any salesman who, attracted by the pictures or vulgar colours, has found his way inadvertently to this blog only to be insulted for his troubles.  My feelings are not entirely rational. A minor background in macroeconomics instructs me that consumer demand is critical to the future economic health of the world, that asceticism is a luxury only to be afforded by the lucky few, and that it would be an unmitigated disaster were the meek to inherit the earth.  A little, harmless porky from a zealous salesman in Europe can lead to a butterfly flapping its wings at someone pulled out of poverty in the Far East, or something like that.

I do not expect governments to share my prejudice, but events last month made me wonder. No fewer than 8 countries raised their VAT rates on January 1. The intention was noble – aiming to cut spending and raise taxes in order to reduce their deficits; VAT is an efficient weapon in the fiscal armoury, but the timing could not have been more inept. Allow me to explain by way of an example from the University of Life at Finchley.

Once upon a time in May 1984  there were Three Taxbreaks – Mummy Taxbreak, Daddy Taxbreak and Baby Taxbreak. They lived in a quaint maisonette that had been jerry-built 25 years earlier in the post-war building boom. Life was ideallic but for one solitary problem: rising damp. Mummy Taxbreak invited countless (probably two, but the passage of time plays havoc with one’s memory) workmen to try to fix the problem, but to no avail.

Then one evening, as the rain beat down on the porous front wall, there was a ring on the door-bell. Daddy Taxbreak opened the front door  to find a  young Cheshire Cat in a polyester shirt, polyester tie and polyester suit (the shoes were probably imitation-leather plastic) carrying a brief-case and grinning profusely at what had previously been  the closed door but was now Daddy Taxbreak’s face. Momentarily caught off guard by the relief that this was not yet another of those semi-literate missionaries flogging back copies of The Watchtower, Daddy Taxbreak acceded to the cat’s request to come in (it must be remembered that Daddy Taxbreak was 26 years old and had yet to learn the importance of keeping the drawbridge up at all times).

You can make a fortune out of anything these days

You can make a fortune out of anything these days

To cut a short story even shorter, it transpired that the Taxbreaks were not the only Rising Damp sufferers on the estate and the Cheshire Cat’s company was offering a revolutionary approach to the problem where, for less than £200 (an absolute fortune), they could insert little spheres of special material at strategic places in the wall which would absorb and expel the uninvited water. He opened his briefcase to reveal what looked like a Geiger counter (or what Daddy Taxbreak pictured a Geiger counter to look like) and removed a little rectangular electronic device with two sharp pins at one end. Before proceeding to prod the various walls in the main room (“More rising damp may be lurking undetected, sir”) he succeeded in pricking Daddy Taxbreak’s membrane of gullibility (Mummy Taxbreak would later claim that she was never convinced, and Daddy Taxbreak decided to believe her). “I must tell you, sir, that if you sign today, you will be able to avoid the VAT that is going to be imposed from June 1 on house improvements – this is a big saving.” Rising damp was replaced in Daddy Taxbreak’s mind by rising vomit – but he let him proceed anyway.

As he worked  his way around the room  driving his little pins into the wall, watched attentively by Baby Taxbreak, there was suddenly an almighty flash and the Cheshire Cat  was literally thrown backwards across the room against the opposite wall (there was also an almighty  bang, of course). If you are going to jerry-build a house, you might as well go the whole way and, it later became apparent, the main electricity cable had been inserted far too near the surface of the wall which now had an almighty hole in it.  As a result of this incident the Taxbreaks were subsequently able to have the entire maisonette redecorated thanks to an over-generous insurance company that insisted on paying the higher of the two estimates the Taxbreaks provided. What is more, it transpired that the entire problem with the rising damp was caused by a flower bed which the Taxbreaks paid twenty-five quid to have filled in and never caused a problem ever again.

Oh, I almost forgot the poor Cheshire Cat  (How could I?). He lived to darken more front doors. He was miraculously only slightly shaken and, eagerly accepting the offer of a drink by Daddy Taxbreak, was given a hot cup of tea. Seeing him politely off the premises, minus a sale and minus his little rectangular electronic device which was  now well cooked and residing in the kitchen bin, Daddy Taxbreak  pointed out that he was a trainee Chartered Accountant and the expansion of the VAT base on June 1, whilst affecting hot takeaway meals and home improvements, should not stretch to the service he was offering – but nice try and good luck with the next moron.

I assume, dear readers, that you do not need any further explanation regarding the VAT hikes in January, but for the benefit of any salesmen who, armed with an adequate dictionary, have made it this far, I will elaborate.

The French bought millions of these in December to beat the January VAT hike

The French bought millions of these in December to beat the January VAT hike

Since the 2008 crash, governments have had to deal with the potentially contradictory policy imperatives of deficit reduction (reducing government spending and increasing tax take) and stimulating consumer demand which fuels growth and, in turn, increases tax revenues. A great way to get people to spend is to inform them that , in two months time, whatever they are thinking of buying will be more expensive. Whatever they might not have ultimately  bought in two months time, they are likely to buy now and while they are in the mood or in the sights of a good salesman, are likely to buy things they never realised they didn’t need – thus further stimulating the economy. An announced VAT rise, clearly designed in itself to raise revenue, will do more long-term economic good in a depressed, non-inflationary economy if it leads consumers to buy now (one of the reasons VAT rises are generally announced well in advance). So what were Governments thinking when they announced VAT rises for the week after Christmas – the one period in the year when the western world never needs encouragement to spend? They should take a leaf out of Japan’s book. Shinzo Abe’s Government is upping the Japanese  rate in April. On the other hand, they don’t celebrate Christmas.

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