Tax Break

Who said tax is boring?

Archive for the month “July, 2017”

Nobody expects the Spanish Inquisition

monty-spanish

And now for something completely different…

As Inquisitions go, the Spanish one went quite recently. The last garroting took place in 1826, with abandonment of the 350 year-old program in 1834. Portugal had, by then, put that sad part of its history behind her, while the Papal States, and their offshoot The Vatican, finally got round to announcing their Inquisition’s requiem in 1908, and its requiem aeternam in 1965. Parting was, evidently, such sweet sorrow.

Despite the Renaissance and all that followed, and despite the receding risk of having one’s soul removed from one’s body by religious force, the Catholic Church (and in its wake, other Christian sects and religions) has historically been treated with kid gloves – nowhere more notably than in the field of taxation.

Several nations have agreements with the Vatican governing that institution’s extensive property holdings, which provide extensive exemptions from income tax and property taxes. In addition, for various reasons (e.g. in the US, the Establishment clause of the First Amendment; in other nations, the contribution to the public good) nations include religions of all stripes in their tax-free, not-for-profit legislation.

Where the real clash occurs is when a religious institution earns commercial income. Income tax is a dogmatic no-brainer (though not according to all those agreements); but property taxes are in another world.

Salvation has possibly come in the form of the European Union, the Godless machinery of which has just come up, for at least the second time, with a fortuitous deus ex machina.

On June 27th, the European Court of Justice issued a judgment that Spain’s municipal construction and building tax could apply to Catholic Church property used for educational purposes not funded by the Spanish government. This was despite a Spanish High Court ruling enforcing a 1979 agreement with the Vatican that no taxes could apply to property and earnings from property owned by the Holy See and its offshoots. The miraculous solution was unlawful state aid – which, in the EU canon, is up there with adultery and child-sacrifice. The case was referred back to the Spanish courts for consideration – the presiding judges of which will presumably not need to stretch Church representatives on the rack or burn them at the stake in order to enforce an equitable solution.

On a previous occasion, in 2012, thanks to pressure from the EU over the same unlawful state aid, then Italian Prime Minister Mario Monti was handed the moral strength to strong-arm the Vatican into paying taxes on commercial properties around Italy, which hitherto had been tax exempt if they included some token religious symbol, like a chapel in a converted monastery hotel. Meanwhile, the Vatican itself remained a tax sanctuary, although the cash-strapped city of Rome has in recent years been trying to get the pope, who happens to live there and has expressed personal support for taxation, to pass the collection plate among the moneychangers at the entrance to the Vatican museum and its lucrative shop.

Other countries, unable to brandish the symbol of unlawful state aid, that have been trying to reach a modus vivendi with the Church will welcome the ECJ’s decision; notably Zimbabwe, that paragon of taxation virtue, and Israel, where it all started when an idealistic young man exhorted his countrymen to ‘render unto Caesar the things that are Caesar’s ’. But then, in those days, all roads led to Rome.

 

 

Did you hear the one about..?

23cnd-marceau1.600

French comedy at its (silent) best

This year’s Booker International prizewinner, ‘A horse walks into a bar’, follows the routine of an over-the-hill stand-up comic as he coaxes and manipulates his audience, painfully aware that one failed joke could send the entire act crashing through the stage floor.

I often wonder why modern politicians don’t take their cue from stand-up comedians. While much of what they say and do is laughable, they never seem to be afraid of wheeling out the old, failed one-liners. And, unbelievably, far from throwing rotten tomatoes, their constituents and the international community at large lap up their corny nonsense.

For example, did you hear the one about the French Finance Minister who walked into a press conference …?

Following five years of clownish misrule by socialist Francois Hollande, last month France’s independent auditor uncovered a budget shortfall of seven billion euros. Meanwhile, France has failed to meet the EU maximum deficit requirement of 3% of GDP every year for the last decade – a target that is particularly important for the stability of the single currency. And, then there is the protected labour market, with maximum working hours and early retirement, to name but two loony-left policies.

All that misery led the new Prime Minister to announce earlier this month that President Emmanuel Macron’s campaign-promised tax cuts would have to wait until 2019 while the government set about balancing the books. That invited an immediate reaction, not from the opposition, but from the government’s Finance Minister, evidently acting with the backing of his boss’s boss. According to the quickly revised script, the first stage of the planned reduction of corporate tax from 33% to 25% would go ahead next year – down to a cordon bleu, mouth-watering 28%. Meanwhile, housing taxes would be reduced, and there would be a reform of wealth tax (the latter would be delayed).

The amazing thing is that the Finance Minister declared that the required budget deficit target would still be achieved in 2018 – the gap evidently to be closed by the expected additional tax revenues from the economic growth arising from the change. You can fool some of the people all of the time. History is full of no-hope fiscal promises from governments. A larger than expected deficit, plus labour rigidity that will take years to unravel, would be a no-brainer to any tenth-grade pupil who could think past his infatuation with his teacher. Short of a miracle – like the bonanza of more than a billion euro back-taxes the French courts refused to sanction from Google last week, or the Finance Minister getting lucky with the country’s foreign currency reserves on the tables at Monte Carlo – the deficit target is going to be missed once more.

I realize that politicians, more than most, do not like to be bearers of bad tidings, but what about the French equivalent of the man on the Clapham omnibus? Do people really just hear what they want to hear?

While governments and their cohorts can, at a price, mess with the money supply and the amount of fiscal spending, as well – in fairness – as tax policy, they clearly cannot micromanage the annual tax-take.

Lousy one-liners aside – in politics, like in stand-up, it is all a matter of timing…..

 

The Unsatanic Taxes

funnyroadNobody who has read Salman Rushdie’s classic ‘Midnight’s Children’ can be indifferent to the juxtaposition of India and Midnight in a phrase or sentence. So, the recent announcement that India’s new GST law (VAT by any other name would smell as sweet) would come into effect, amidst much fanfare, at midnight on July 1 was enough to make my heart flutter like a punkahwallah’s punkah.

The world’s biggest democracy has finally joined the vast majority of the globe’s tax-setters in a cross-twenty-nine-state system that, when the technological problems are sorted out, should improve India’s tax-raising efficiency and, thus, help that great country in furthering its economic growth.

That is not to say that VAT is the Mother Teresa of all taxes. Its biggest problem is that it is regressive –  it taxes consumption at the level of the poor-man-in-the-street who, the poorer he is,  spends a higher proportion of his income on surviving. This is traditionally combatted by lower rates or exemptions on basic things like food. Indeed, India – in keeping with its tradition of making everything as complicated as possible – has introduced five rates of VAT  plus a stratospheric concoction for dealing with untouchables like luxury goods and tobacco.

Of course, there will still be those who manage to get round the tax, legally or otherwise. Time will tell whether devious residents latch onto the ubiquitous Carousel Fraud phenomenon (involving the import and export of the same goods multiple times – a bunch of Brits were caught a few years back when they got lazy and stopped changing the plugs on phone chargers between France and England). And then there was the hard-to-believe wheeze of the Spanish theatre that sold VAT-exempt carrots for admittance to its performances together with a worthless piece of paper called a ticket. The only problem (apart from the Spanish tax garrotters catching up with them) was that hungry patrons couldn’t prove their right to re-entry to the auditorium after a toilet break during the intermission.

At the end of the day, VAT works. One of the few countries that does not seem to agree is the ‘biggest’ democracy (as opposed to the ‘biggest democracy’). A few years ago, at lunch at a conference in Berlin, a group of American experts were discussing ways of plugging the impossible US deficit, coming up with all sorts of supply-side ideas. Thinking that V.A.T was the sort of acronym (actually sayable, like M.A.D – Mutual Assured Destruction) that Americans would die for (especially when said with an English accent), I suggested that imposition of such a tax would surely solve all their problems. I was completely frozen out. V.A.T is a dirty acronym in the eyes of Uncle Sam. My luncheon partners looked like they wanted to drag me in front of Senator Joseph McCarthy’s Un-American Activities Committee. The irony, of course, is that while V.A.T undermines the ‘redistribution of income’ philosophy of most of the ’red’ nations (such as Britain and Europe) imposing it, the American belief in ‘equality of opportunity’ is completely at peace with its workings.

The Indians still have a long way to go. Their direct tax system leaves much to be desired – the witch-hunt of Vodafone to cover the seller’s capital gains in an offshore purchase a while back, and its treaty-defying Dividend Distribution Tax being but two examples of the rot.

As Rushdie put it in Midnight’s Children, ‘I admit it: above all things I fear absurdity.’ Thankfully, his beloved India is finally taking steps in the right direction.

There is an i in America

indianajones912121

In a sweltering, politically incorrect scene in Raiders of the Lost Ark, Indiana Jones – tired of the boastful swordsmanship of an Arab adversary – nonchalantly draws his pistol and shoots him dead. This could be a metaphor for the last hundred years: with a few exceptions, when the Americans have put their minds to it, their primacy in all things has meant they have the last word. And they know it.

So, I admit to remaining a little nervous about the impossibly named MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY RELATED MEASURES TO PREVENT BASE EROSION AND PROFIT SHIFTING which, had the Americans been among the 68 nations that signed it in Paris last month, would probably now be known for short by its acronym MCTITTRMTPBEAPS. But America was not among those 68 nations, so it is known affectionately as The Multilateral Instrument. In tax terms it is a miracle up there with splitting the Red Sea and walking on water but, to paraphrase Michael Jordan: ‘There is no i in team, but there is in America’ – the Americans are just not good at playing a team game.

The Multilateral Instrument is the most unlikely victor in the mammoth OECD Base Erosion and Profit Shifting enterprise of the last four years. In order to ensure a fairer playing field in the world of international tax, there was the daunting prospect of the need to adjust thousands of bilateral double taxation treaties – Mission Impossible. Then somebody – probably the sort of person whose optimism leads them to walk confidently over the edge of a cliff – came up with the idea of getting all the countries to agree to a super-agreement that would take precedence over the myriad treaties. Back in 2013, any sane human being would have said it was a case of Taxworld meeting Disneyworld.

But, by ingeniously including Get Out of Jail Free cards whereby member states could publicly opt out of individual provisions of the Multilateral Instrument, everybody who was anybody (apart from the biggestbody) was able to cherry-pick and sign up. As a result, within a couple of years, the game will be up for such fun pastimes as hybrid mismatches, treaty abuse, and permanent establishment avoidance. Against that will be improved dispute resolution, as well as the prospect of arbitration in intractable situations. Tax heaven (as opposed to haven) on earth.

So far, other than the United States, the only other G20 nations not to sign up are Brazil and Saudi Arabia. Perhaps the Saudi Arabians are still smarting from Harrison Ford’s one-upmanship nearly four decades ago, and are hanging out for the prospect of being the last nation standing. I can’t wait for the new Indiana Jones movie scheduled for 2020.

Post Navigation