Tax Break

Who said tax is boring?

Archive for the month “January, 2015”

Celebrity Squares

1101500102_400Adolf Hitler is, for me, ancient history, while Churchill is almost pinchable. Why the distinction regarding two implacable foes, the height of whose infamy and fame coincided exactly? It is simply because, by the time I was born, Hitler had been dead for over a decade, while I remember Churchill’s funeral,  50 years ago next week, vividly. Hitler was in black-and-white. Churchill was in colour.

We tend to think back on our childhood as steady-state. I was 10 years old when Colour TV came to Britain and  have always thought of it as a major revolution in British life. In fact, although the BBC had started broadcasting in 1936, few homes had TVs until around 15 years before Colour hit the living room. The story of the last hundred and fifty years has been one of continuous change.

Change has been as true of Celebrity as of any other field. Although the early twentieth century brought images of mute silver-screen stars to the world’s movie theatres, it was Charles Lindbergh who, thanks to his groundbreaking transatlantic flight in 1927, was the first true international celebrity. World leaders were not seriously heard until the 1930s, so that, when the British people had the lion’s heart in the dark days of 1940, Churchill’s roar was quite a novelty. It wasn’t surprising that the Old Man was crowned Time Magazine’s Man of the Half-Century in 1950 (he was beaten for the full century by Einstein), or that he was later voted, almost by acclamation, as the Greatest Englishman, whatever that may mean.

High Flyer

High Flyer

Through the second half of the twentieth  century, celebrity had two significant branches – entertainment and glitzy wealth on the one hand, and politics on the other. If you were not an embarrassing extrovert or a politician, you could expect to live your life in blissful anonymity. Then came the Information Revolution. Everybody was out there with the potential to reach the world – even if the world wasn’t really that interested in being reached by most of them. But who cared? It was cheap and worth a go.

Which brings me to my point. I am a tax advisor. I am, despite what it says in the sub-headline to this blog, boring. Tax advice is something to be practiced behind closed doors by consenting adults. Should I ever become a celebrity, it will not (or at least, should not) be because I dispense advice about the laws and practices of taxation.

But, it appears, the times they are a’changing. After the OECD Centre for Tax Policy and Administration aired its maiden internet TV broadcast last year, its head – the drop-dead gorgeous Pascal Saint-Amans – has now been declared Person of the Year by none other than Tax Notes International (which you will be forgiven for never having heard of). In a wide-ranging interview on the progress of the world-famous BEPS project, he declares that he is ‘the luckiest person in the tax world’. Now, go steady there, Pascal. A tax attorney who pocketed a $10 million success fee might argue that you are in second place. We know you are an important bloke, and you and your team have to philosophise a lot about the future of taxation, but – as I have written in the past – philosophy is to international taxation what a bicycle is to a fish. You, and the world-famous Tax Notes International, may think that the BEPS project is up there with the Theory of Relativity and World War II, but frankly it isn’t.

Dazzling

Dazzling

When tax bureaucrats become celebrities – and I stress that I am sure Mr Saint-Amans is amazingly good at whatever he does from 9 to 5 – it is time to think about hanging up ones Oxford Shoes.  A good tax advisor is someone who has a broad view of the business and political environment around him. There is plenty more to read about than irrelevant bla-bla regarding  tax people similar to himself.

So I say to the editors and my fellow readers of Tax Notes International: ‘Get a life!’

 

The spotlight beside the golden door

When did she renounce her first religion?

When did she renounce her first religion?

Fifty years ago today, the New York Times announced that Elizabeth Taylor  had failed in her attempt to renounce US citizenship. Required to disavow ‘all allegiance and fidelity’ to the United States, she found herself  unable to do so. Now, allegiance and fidelity are terms Ms Taylor had a lot of experience disavowing – eight lots of experience, to be precise: Mr Hilton, Mr Wilding, Mr Todd, Mr Fisher, Mr Burton (Take one), Mr Burton (Take two), Mr Warner and Mr Fortensky.

Ms Taylor, somewhat disingenuously, declared her reason for renouncing her citizenship as wanting to have the same citizenship as her then husband-for-the-first-time , Richard Burton. Had Burton, by reason of his birth, been a Welsh Nationalist (which he was patently not), the argument may have had some traction. But Taylor did not need to seek the same British citizenship as her husband for the convenient reason that she was British, born and bred.

The only reason that the Cleopatra star wished to be rid of her American passport was that she was living and working in Europe at the time, and she did not want to have to pay tax in the US.

Nothing has changed in fifty years. People are renouncing their citizenship right, left and centre (although, on this occasion, I suppose that should be ‘center’). Whereas, in the conscience-ridden and patriotic ’60s ordinary people had understandable difficulty in renouncing allegiance and fidelity – nowadays, if it will save a buck or two, who the hell cares about such outdated emotional claptrap?

Thaddeus Stevens who roomed with Al Gore at Harvard

Thaddeus Stevens who roomed with Al Gore at Harvard

But, of course, as in so many other respects, this aspect of  US Tax Law is insane. Eritrea is the only other nation that taxes income on the basis of citizenship. I admit that I have never been to Eritrea (in fact, I would not know where to find it on a map, so it is just as well I have never tried to get there), but my assumption is that Fifth Avenue it is not. One can almost sympathize with successive Eritrean governments trying to plug their fiscal hole with takings from comparatively wealthy citizens abroad. One could also sympathize, if one were living a hundred and fifty years ago, with Thaddeus Stevens and his House Ways and Means Committee wanting to clobber Yankees escaping the Civil War. But things have moved on since then. The  dysfunctional American tax system allows multi-national corporations to shelter profits overseas, provides countless tax breaks to domestic taxpayers and has enough loopholes to fill whatever you can fill with loopholes. So, choosing to chase expatriates not currently benefiting from the public spending of tax revenues is barmy.

Beyond the idiocy of citizenship-based taxation, it is the offer of a ‘Get out of jail free’ card by relinquishing citizenship that I, a non-American with no aspirations to become one, find distasteful. I am very proud and happy that I became an Israeli citizen a quarter of a century ago. This is my home. This is the place where  I raised my children and the place where they are now raising theirs. But I am also proud of being British. It was Britain that offered my grandparents refuge when, over a century ago, they had to escape the stink-hole that was, and possibly still is, Ukraine. It was Britain that stood alone against the greatest evil yet known to man in 1940 and 1941. It was Britain that gave me the education that enabled me to get on in life. Britain does not present me with a dilemma. There is no reason for me to consider giving up my citizenship.

Expatriate Americans, on the other hand, faced with horrendous annual reporting requirements, as well as potentially horrible taxes, have to make a real decision. For those with a conscience, it is an almost impossible situation. How does a native-born American disavow ‘all allegiance and fidelity’? Even I, a non-American, would have difficulty making a  statement like that about the one nation on the planet that, when push came to shove,  has held it all together for the last hundred years.

Still liable to tax

Still liable to tax

Come on Uncle Sam. This year marks the 150th anniversary of the end of the  Civil War. If you can make peace  with Cuba, you can  make peace with your expatriates. They are the best ambassadors you’ve got (although I’m not sure about Liz Taylor – she was a bit of an embarrassment at times, even for an American).

 

Yes we can!

barak_l2014 was the year when ‘Yes, we can’ finally became ‘No, I couldn’t’. It is all over bar the shouting, and Mr Obama is reduced to bumping wedding couples off Hawaiian golf courses so that he can get on with one of the remaining functions of his office.

In fairness, it isn’t just the President who should be swallowing his words. Congress will discover in 2015 that in one area at least –  international taxation – it is being hoisted on its own petard.

The FATCA  ‘spill-the-beans-to-Uncle-Sam-or-he’ll-rip-out–your-windpipe-with-a-pair-of-pliars’ rules  that were conjured up in 2010 have spawned a revolution in international taxation. The big loser is going to be the US of A.

When the Foreign Account Tax Compliance Act was legislated, it was designed to ensure that  income rightly taxable in the US could not be sheltered overseas. Execution involved steamrollering the rest of the world into accepting horrific compliance costs, just so Uncle Sam could relax at the side of his Florida condo pool.

The world, sick of being cowed into submission by the western juggernaut, struck back. What was good for the goose was good for the gander. Countries demanded reciprocal arrangements – which the US agreed to, comfortable in the knowledge that Federal Law did not permit the gathering of such information. America was still riding high.

But if reciprocal arrangements were on the cards, why stop at bilateral arrangements with the US? There was a serious, and soon to be succesful,  move towards the Automatic Exchange of Information between just about everybody.

Golf - Putin style

Golf – Putin style

Aye, Mr United States Congress, there’s the rub. Because, once old orders disintegrate, there tends to be a domino effect. If the game was up for dirty money, why not deal with slightly-soiled money as well? National Parliaments started to make noises. Then came the Base Erosion and Profit Shifting initiative of the OECD, sold to the world by David ‘I play cricket’ Cameron and Vladimir ‘I play dirty’ Putin. All of a sudden, bringing together the international community to ensure that multi-national companies pay their fair share of tax in countries hosting their activities was not just a pipe dream. Meaningful transfer pricing based on real activity, country-by-country reporting, sharing the cake of the digital economy, updating archaic permanent establishment rules and unravelling hybrid transactions, were all within sight. What is more, it didn’t really matter if the BEPS action plan would be formally adopted or not – the international mood was to enact unilateral legislation and take it from there.

The bottom line is that, in 2015,  Uncle Sam’s FATCA is going to turn around and bite him on his bum. Why? Because the vast majority of reshifting of profits will be away from the US. It is true that much of the profits now being claimed from US multinationals by countries such as the UK and France are currently parked offshore – but, were the dysfunctional US Congress and President to stop squabbling like alley cats in a garbage can, they could pull in those earnings at the stroke of a pen. That will not be the case, however, once they disappear legitimately into the coffers of other sovereign states.

A typical 2015 day at the White House

A typical 2015 day at the White House

So, President Obama, Senator McConnell and Speaker Boehner, the message from the world beyond New York Harbor is: ‘Yes, we can’. And we are going to. Anyone for golf?

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