Tax Break

Who said tax is boring?

Archive for the month “December, 2014”

Christmas Cheer

Charles-DickensThe spirit of Christmas Present materialized in the wake of the sensational success of  ‘A Christmas Carol’. Britain which, despite French whinging, was – in 1843 – the world’s superdooperpower, had been struggling with Christmas traditions and what-not for years. Dickens’s simple short story of a tyrannical, lonely employer mirrored against his put-upon employee (the latter having a loving, but tragic, family life) caught the nation’s mood. In a tale that, to borrow  from John Lennon, is more popular than the Nativity, the eponymous Scrooge eventually sees the light, and everyone – including the sick child that Dickens threw in for extra pathos – lives happily ever after. Amen.

The gifts didn't improve much over the years

The gifts didn’t improve much over the years

For me, a non-Christian, Christmas has long been defined by an event exactly 100 years ago today. The organized football match between the Allies and the Hun is probably apocryphal (nobody can agree on the score), but what is certain is that there was an informal truce on the Western Front for a number of hours on Christmas Day 1914. The Germans seem to have started it (as every good Englishman knows, they always start everything) by singing Stille Nacht (a passable translation of Silent Night). Before long, both sides were out of the trenches exchanging gifts of tobacco, black bread and buttons – and, just maybe, starting the Hundred Years War that has seen Jerry winning four World Cups to our one. (Fortunately, the World Wars went the other way.)

The truce over, the troops climbed back into their respective trenches and spent the next four years ensuring that at least 10 million of their number would never again sit around a Christmas tree exchanging gifts in the bosom of their families. Indeed, in December 1915, the order went out that any repeat of the events of a year earlier would result in a Court Martial and the Firing Squad, not necessarily in that order.

And THAT is Christmas. Once a year, mankind is enveloped in a vague haze that colours its eyesight and addles its brain. For a few short weeks, minds turn to gift-buying and peace and goodwill to all mankind. Come January 2nd, the miserable self-seeking world is back to normal  (from what I am told by Christian friends, it can start on Christmas afternoon when out-of-town guests – like three-day-old fish – start to stink). Someone who in mid- December would volunteer to save the world would, come  New Year, not give the drippings of his nose to a person dying of thirst.

Why do people insist on comparing me to these guys?

Why do people insist on comparing me to these guys?

This is the reason why, perhaps ironically, I believe in Taxation. While there are countless wonderful individuals and organizations out there who help the less fortunate, only the enlightened, collective self-interest of a people delegating the responsibility for its poor to its elected representatives, has the chance of ridding a country of the scourge of poverty. However enticing the Christmas message of peace and goodwill to all men sounds today (December 25th), Scrooge was right when he called it ‘Humbug!’

In any event, a heartfelt Merry Christmas to everyone celebrating today.

For Whom The Bell Tolls

Mr Turner wasn't always a Romantic

Mr Turner wasn’t always a Romantic

The scene – a church graveyard in Middle England. A respectable crowd, trussed-up in winter clothes, surrounds an open grave. As the coffin is lowered into the gaping hole, the priest declares: ‘The Mother of Parliaments gave, and the Mother of Parliaments hath taken away.’ A sharply dressed gentleman throws the first clod of earth onto the coffin-lid, almost obscuring the gold plaque: ‘Double Taxation Treaties 1872 – 2014. Taken In Their Prime. RIP’.

George, for that is the chief mourner’s name, turns towards the gate, followed by Dave, Nick and Ed. An intimidating, middle-aged woman tarries at the graveside, a sardonic smile engulfing her harsh face. ‘Margaret!’ calls Ed. ‘Move your arse. If we don’t hurry, the Tories will destroy the capitalist system before we  get the chance.’

Not fair. The lady is not gigantic

Not fair. The lady is not gigantic

Sounds gothic? Welcome to  Chancellor of the Exchequer George Osborne’s pre-election Autumn Statement (Budget Preview). After Labour MP Margaret Hodge successfully mauled executives of Starbucks, Google and Amazon back in 2012 over the immorality of shifting UK profits to low-tax jurisdictions, it was only a matter of time (election time, to be precise) before the Conservative Government sought to retake the moral high ground.

Many thought it enough that David Cameron had taken the lead in pushing the OECD BEPS initiative at the G8 Summit in Northern Ireland in 2013. Wrong. Last week his Finance Minister spewed out possibly the most radical piece of international taxation legislation since JFK nuked the world with the Controlled Foreign Corporation (CFC) on October 16, 1962 – the first day of the Cuban Missile Crisis (CMC).

google taxThe  Diverted Profits Tax – already affectionately  dubbed the Google Tax – will tax profits rightly belonging to the UK but currently denied it due to the inconvenient permanent establishment provisions of Britain’s double taxation treaties. It will also tax payments to low-tax jurisdictions unless there is a jolly good reason for them, irrespective of OECD transfer pricing provisions. In order to ignore the existence of a century-and-a-half’s worth of international agreements, the new tax is to be precisely that – a new tax, not a subdivision of the Corporation Tax. It will be levied at a higher (25%) rate and, Mr Osborne hopes, will be beyond the clutches of the EU, OECD and substantially every country participating in the United Nations General Assembly.

Happily, the legality of this aggressive move is to be examined by the Tory party’s nemesis – the European Commission. There are also strong arguments that the new tax does not succeed in side-stepping treaties, being ‘substantially similar’ to existing taxes.

What is hateful about the proposal – which has enormous support in the UK – is that it potentially undoes 140 years of international tax cooperation. Ironically, that cooperation was started by the British – the first ever double taxation treaty being concluded with the Swiss Canton of Vaud in 1872. Moreover, such international cooperation has never been more marked than in the last two years. The BEPS Action Plan, while unlikely to be implemented in all its detail, has, together with FATCA-inspired Automatic Exchange of Information, already started to shake-up the international scene in a big way.

Farage proves he can multi-task

Farage proves he can multi-task

So why has the British Government decided to risk bringing the whole international tax edifice crashing down, encouraging  other countries to retaliate with beggar-thy-neighbour treaty avoiding provisions? David Cameron has been a safe pair of hands as Prime Minister and is deserving of praise, but this latest gambit can only be explained in terms of cheap electioneering. It follows a developing trend that started with immigration bashing, and continued with threats to leave the EU. The paranoia of Britain’s ‘Knees up Mother Brown’, beer-swilling, fag-smoking UKIP party dodos has become contagious. Cameron did not see things done this way on the playing fields of Eton. The Prime Minister would do well to go back and read John Donne’s ‘No man is an island’.

Cry for Argentina

Tax Advisor's traditional battle dress

Tax Advisor’s traditional battle dress

Any professional Opinion Letter writer knows that the invention of the footnote was a godsend. Enabling the eternally cautious tax lawyer or accountant to throw caution to the wind in the main body of his document, the footnote can be stuffed with endless bits of what the paying client calls ‘fudge’ and the expert refers to as  ‘caveat’.

Hilaire Belloc, the writer of those early twentieth century ‘Cautionary Tales’, penned the most famous footnote in literature:

He had a lot of stocks and shares

And half a street in Buenos Aires*

*But this pronunciation varies

Some people call it Bu-enos Airés

Read today, it appears  ironically prescient that a Cautionary Tale resorted to Argentina as the seat of a person’s wealth. A hundred years ago, in 1914, Argentina was among the world’s 10 leading economies, a showcase of what South America could achieve. Today, in 2014, Argentina is a basket-case – a national cautionary tale, if ever there was one.

One of Argentina's more successful exports

One of Argentina’s more successful exports

After a hundred years of intermittent catastrophic military rule, as well as not much less catastrophic civilian administration, Argentina’s last century is best remembered for Evita!, The World Cup, and the Falklands Fiasco. Not much of a record. At times it has looked like it might disappear down the plughole of history.

Current Argentine President, Cristina Kirchner, is agonizingly playing out the last year of her disastrous administration. Inflation is thought to be running at over 40% (Government Statistics are known to be in the ‘damned lies’ category), the country defaulted (again) on its sovereign debt this summer, and the peso has been in free-fall. Meanwhile, the Vice President has been indicted on fraud and corruption charges, but – and why not, indeed? – hangs on to office.

What is interesting is that, despite all this nonsense, the Argentine Revenue Service is going strong and to hell with the economic consequences, as if it were 1914 all over again and Argentina were on the way to overtaking the US.

Among the less exciting developments, thanks to Exchange of Information with the French, the authorities have uncovered a thousand unreported foreign bank accounts. Although nobody is making the connection, it may be no coincidence that a number of HSBC employees have been arrested for allegedly enabling tax fraud. Tax Amnesties are now being offered to those who come out with their hands up, waving a cheque book.

At the same time, the Revenue Service has gone to town on Transfer Pricing. They have shot broadsides at such  companies as Procter & Gamble and GE. In the case of P&G they even suspended their operations for a while recently, which could not have been conducive to the sweaty population’s personal hygiene.

In taking on the multinationals, Argentina should remember that it takes two to tango

In taking on the multinationals, Argentina should remember that it takes two to tango

Of course, the Argentines have a history of picking their wars. They thought Mrs Thatcher wouldn’t hit back when they invaded the Falklands in 1982, but were comprehensively taken to the cleaners. It will be interesting to see how this widening conflict with multinationals pans out. I reckon it will all end in tears.

And meanwhile, the Vice President, facing fraud and corruption charges, carries on in office….

 

 

 

Post Navigation