Tax Break

Who said tax is boring?

And now for something hardly different

Speaks for itself

Speaks for itself

The surviving members of the Monty Python team must be cock-a-hoop over the cover of the (just about) current issue of The Economist. Under the headline: ‘Europe’s Economy’, a parrot lies dead receiving an infusion, while Angela Merkel comments, ‘It’s only resting’. No further explanation required. Forty-five years on, the Parrot Sketch is part of the lingua franca.

The other instantly recognizable  Python sketch is ‘The Four Yorkshiremen”, in which a group of wealthy, aging northerners  each vie for the distinction of  most deprived childhood. In fact, that piece is almost a case of imitation being the sincerest form of flattery. It started life in the 1967 series “At Last The 1948 Show”, was adapted for the radio series, ‘I’m Sorry I ‘ll Read That Again’ in 1969, and only made it to Python in a live show in 1974.  ‘Almost’ imitation, because Cleese and Chapman were co-writers of 1948, together with Marty Feldman (the  most unlikely Jewish Yorkshireman ever) and Tim Brooke-Taylor (who did ISIRTA together with Cleese).

Tax authorities take this imitation business quite seriously, even if their material is far less original than Monty Python’s.

What's in a name?

What’s in a name?

Despite the hammering of Harmful Tax Practices, first more than a decade ago by the OECD and EU, and more recently by the OECD BEPS project and an extensive transfer pricing review, there has been an upsurge in the introduction of copy-thy-neighbour special IP regimes. To fool the enemy, they carry all sorts of different names and precise terms – Patent Box, Innovation Box, and – the latest Irish smokescreen –  Knowledge Development Box.

The ostensible justification for these schemes is the incentivization of R&D expenditure by offering reduced tax rates on associated revenue. But, with the exception of the UK innovation box, which was for self-defense, what countries are clearly doing is standing on street corners raising their skirts above their knees in an effort to attract new clients. Switzerland is proposing a scheme, as it preempts the forcible closure of its House of Ill Repute by undertaking a comprehensive tax reform. Ireland, meanwhile, no longer able to tempt Apple with its harmful double-Irish position, can at least claim not to be plagiarizing – it had the first scheme in the early seventies which it discontinued in 2010.

Innovation boxes are currently, effectively, under a three-pronged attack but are still spreading. There is Action 5 of BEPS dealing with Harmful Tax Competition – and what could be more harmful tax competition than this race to the bottom? Then there is Action 8 which deals directly with intangibles and the concept of value creation.  Finally, there is the long-running saga of OECD Working Party 6 on ‘The transfer pricing aspects of intangibles’. All these projects seek to prevent the maintenance of intangibles in ‘the second draw, third office along’.  Even if the whole caboodle gets caught up in bureaucracy and self-interest, and is not adopted internationally, something is bound to stick. And that something is likely to be the need for boots on the ground in any jurisdiction claiming the right to substantial returns due to intangibles ownership.

Where countries support large workforces of savvy individuals, the on-the-ground development  of intellectual property makes sense. But if all the country is offering is a crisp suit, a law office and a plaque, the whole thing could easily unravel.

Some called this British humour too

Some called this British humour too

A couple of years ago I made a one day trip to England to see Tim Brooke-Taylor and his colleagues doing a live recording of a long-running radio show – ‘I’m Sorry I Haven’t a Clue’. Over its forty-year run, shows have often ended with the announcement of late arrivals at some ball or other. Among the late arrivals at the Aggressive Tax Planning Ball might have been: ‘From the Republic of Ireland, Mr and Mrs O’Vation- Box and their son N. O’Vation-Box.’ You get the idea. It is called British humour. Patent Boxes and Innovation Boxes are full of it.

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