Tax Break

John Fisher, international tax consultant

Archive for the month “March, 2020”

Kids’ stuff

In A.S. Byatt’s 2009 masterpiece ‘The Children’s Book’, the reader has one horrible advantage over the predominantly young characters in the novel. As they gradually grow and mature through the closing years of the 19th century and the Edwardian decade that followed, the carefree youngsters are surrounded by art and privilege, several poignantly attending the first night of J.M. Barrie’s Peter Pan in the West End in December 1904. Only we, the readers, know that they and their world are inexorably heading for disaster with the events of the summer of 1914.

That novel has often come to mind when reading the pronouncements of economists and commentators in the years since the world extricated itself from the 2008 crash and climbed back on the growth track. Debt-to-GDP ratios, balanced budgets, the creative destruction of the capitalist economy, supply and demand chasing each other – the wonders of the freer economy. Yes, there is always that nagging problem of the Gini Coefficient and gaping inequality, but as Thomas Pickety points out in ‘Capital and Ideology’, every generation has its unique justification for that, ours being that everyone is better off than in the past.

Meanwhile, as distinct from A.S. Byatt’s protagonists, we are all aware of the upheavals awaiting us or our children in the not-too-distant future courtesy of Artificial Intelligence. But, much of the economic world just seems to close its eyes and carry on. That is nothing new. Indeed, as Nasim Nicholas Taleb pointed out in ‘The Black Swan’, a few days before the outbreak of World War 1 bond markets showed no indication of the impending conflict.

Thanks to Coronavirus, the world has been forced to pause and reflect. As governments come to terms with the situation, they look to emergency solutions. The British have just abandoned fiscal orthodoxy, effectively jacking up the debt- to- GDP ratio and abandoning any thought of a balanced budget in the short term. An inflated budget for the National Health Service is life and death – but beyond that the government will be picking up sick pay of employees and offering easier access to welfare payments for the self-employed and those in the gig economy. Property taxes will be suspended for affected small businesses, they will be given more time to pay their income taxes, while small cash payments will be available.  Were the situation to continue indefinitely (Heaven forbid) the natural corollary would be for taxes to be raised on individuals who could afford to pay, and large companies. If the demand by which the economy thrives is to be approximately maintained, individuals laid off or unable to find work need purchasing power, while competitive companies need the ability to survive. It doesn’t take a stretch of the imagination to compare the current situation with at least one scenario of what the AI world has in store for us.

Is it too much to expect that governments use this crisis to think ahead to the disruption that AI is most likely to cause to employment and, hence, national economies? The answer is probably ‘Yes’. On the other hand, as The Economist pointed out a few weeks ago, following a major London Underground strike in 2014 that involved partial closures of stretches of line, it was estimated that some 5% of commuters stuck to their newfound routes, leading to greater economic savings to Transport for London than the costs of the disruption.

Neverland is, after all, entirely fictitious.

The postman doesn’t even ring once

Charles Dickens spent much of his literary career railing against the demonic effects of 19th century bureaucracy. He could just as well have been writing today. Unfortunately, now as then, most of us obediently accept the nonsense thrown at us by the nation’s institutions, because – once solved – we don’t have the time, patience or money to attempt to bring the perpetrators of our suffering to account.

It was, therefore, particularly gratifying to see a court decision a couple of weeks back in which the little guy won against the Israeli Tax Authority over an issue that has affected most of us at some point in our lives.

There is a particularly nefarious right and practice of the Israel Tax Authority and the National Insurance Institute to freeze bank accounts of anybody who they consider owes them money. Sometimes they get it right, sometimes they get it wrong.

A resident of Northern Israel was surprised one day to discover that his bank account was frozen, and cheques were being returned and standing orders refused. When, after a number of visits to his local tax office, he finally convinced them that the $1500 (fifteen hundred dollars!!!) was owed for non-filing of a tax return that he probably shouldn’t have been required to file at all, they cancelled the fine, and released the funds. However, the damage had been done. He had been humiliated before his creditors.

The individual sued the tax authority for defamation.

The case revolved around the local postman. The authorities claimed that they had sent warnings to the plaintiff before opting for their last resort. The plaintiff parried their claim by proving that they hadn’t used his full address, and he had thus never received the warnings. Called to give evidence, the local postman said that there were lots of people in the town that had the same name and while, in the good old days, he would have found ways of matching the letter with the person, since 2007 he was under instruction from head office to just ‘return to sender, address unknown’.

The individual was awarded around $1700 in damages, in keeping with the entirely petty nature of all the sums involved.

The tax authority will, hopefully, now tighten their procedures and fewer of us will suffer unjustifiably at their hands. However, in the third decade of the 21st century, it is surely time to rein in this overzealous bureaucracy and its step-brother, the National Insurance Institute. Apart from examining whether they should have a greater right than any other creditor to freeze assets, they should be forbidden from using such sledgehammer tactics for debts under a certain, material, amount. But, most of all, the doomed-to-fail blind reliance of one bureaucracy on another has to stop. In this case, serendipitously, the tax authorities did not use the plaintiff’s full address, so the post office was off the hook. I dread to think what the outcome of the case might have been had the facts been different.

I need only mention a personal experience five years ago when I needed to send my British passport and accompanying documents  to the UK for renewal. Having waited forty- five minutes in the queue at the local post office, I presented the meticulously correctly addressed parcel to the person behind the counter.

‘Is it important it gets there?’ was her opening salvo.

‘Definitely – it is my passport,’ I answered truthfully.

‘In that case, I suggest you send it DHL.’

Doing my best John Cleeseian impersonation (not very good), I turned and theatrically surveyed the entire room. Turning back to her, I ventured,

‘It’s not much of a  post office, is it?’

Bottom line – there should be no freezing of accounts before a registered letter has been sent and the tax authority has checked that it has been received. Alternatively, a foolproof electronic procedure should be found, obviating the interference of the post office entirely. People’s reputations are precious.

The plaintiff in the above case could have quoted Sydney Carton in A Tale of Two Cities: ‘It is a far, far better thing that I do, than I have ever done.’ What the Dickens!

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