Tax Break

John Fisher, international tax consultant

Archive for the category “Britain”

Red Scotch Tape

And then came the 1970s

When Queen Victoria opened the Great Exhibition in 1851, Britain was the world’s leading industrial power, producing more than half its iron, coal and cotton cloth.

 Well, I don’t think Her Late Majesty would be very amused to hear from her great-great granddaughter how the country she bequeathed to her descendants in perpetuity is currently faring in that field (mind you, her grandson Kaiser Bill did a far bigger hatchet job on Germany).

Nothing highlights the shifting sands more starkly than the announcement the other day that, following World Trade Organization approval, the US is to apply ‘the biggest ever’ new tariffs to imports from the EU – and specifically the UK, France, Germany and Spain.

The British air industry knew when to be competitive

The issue has been brewing for 15 years, ever since the US first complained to the WTO that the EU was subsidizing Airbus and others to assist in their competition with Boeing and others. The EU was indeed found to have overshot the General Agreement on Tariffs and Trade and given until late 2011 to comply. The EU did take measures, but in 2012 the US requested the review of a compliance panel, and in 2018 the WTO determined there had been further violations. The WTO finally ruled last week in the US’s favor and the US Trade Representative was quick to issue a list of products to have their wings clipped through new import tariffs.

The list of products to be punished, represented by their Harmonized Tariff Schedule Codes, is long. The first item is, unsurprisingly, aircraft – the prices of which are to be hiked by 10% from later this month.

It is the next item – designed to hit Britain – that is gobsmackingly strange. You would have thought that it would be heavy turbines, trains or ships. No. It is single malt (and only single malt) scotch whisky – together with single malt Irish whiskey distilled in Northern Ireland, if there is such a thing. And no friendly 10% for them. 25% slapped drunkenly on the price.

It turns out that the most effective way to get at what was once ‘the workshop of the world’ is through premium brand whisky. But, it is all so unfair. Check on Wikipedia for ‘Aircraft Manufacturers of Scotland’, and you will be greeted by ‘Defunct Aircraft Manufacturers of Scotland’. In fact, tragically, Scotland’s biggest claim ever to aviation fame was probably the 1988 Lockerbie Disaster, for which they suffered more than enough.

So, sadly, the good people of Scotland (in the interests of full disclosure, I should point out that I am half Scot) are being made to pay for the shenanigans of their southern partners (who themselves are probably far less guilty than the Germans and French , both of whose record on air wars is abysmal).

Who are the Americans trying to kid?

I don’t know what hurts more – Britain’s descent from the industrial world to the spirit world, or the gross unfairness of trade wars. Not much can be done about the former, but the latter should be exorcised before the new mercantilism takes an unbreakable hold.

We are not amused.

Brexit Blarney

Why the British really don’t want an Irish border

A few years after the Good Friday Agreement, I found myself driving along the Irish border. Now, as a non-reconstructed Englishman would expect to find in Ireland, the road snaked drunkenly in and out of each of the United Kingdom and Republic of Eire (fortunately no other countries were involved, probably because there was a sea in between), without any respect for the  political map.

I got to thinking about that drive the other day, when I noticed that Israel’s new-improved Free Trade Agreement with Canada came into force on Sunday. The last time I checked, Israel didn’t have a border with Canada, but the United Kingdom – for better or for worse – has a border with the Irish Republic. And I know what it looks like. It doesn’t look like anything. They don’t even have a tourist attraction like Berlin’s Checkpoint Charlie to cause an obstruction to passing motorists.

One solution?

The only way goods are going to make it into Israel from Canada is via air, sea or someone else’s border. And the Customs Authority must be licking its rubber stamp, because, far from reducing necessary bureaucracy, free trade agreements – that do away with tariffs (sort of) – create more bureaucracy. Whereas an import from a country governed by WTO rules just needs a quick open of the box to see that what is inside is what they said was inside, under an FTA they have to know what is inside what is inside. ‘Rules of Origin’ stop the good citizens of Bunga-Bunga just changing the packaging and passing their dubious products for Canadian or, even, Canadien.

The British, on the other hand, are currently in a customs union with the Irish, albeit through no fault of their own having been admitted together with them to the EEC in 1973. Customs unions are much more efficient than FTAs because everybody in the union adheres to a common external tariff system – ie all the foreigners (for the purpose of this discussion – and this discussion alone – the French and Germans are not foreigners) get the same treatment. That means that when goods pass between member countries, the local customs authority doesn’t need to see what is inside the box at all. On the other hand, an FTA allows members the flexibility to decide their own external tariff policy. Canada does not need to leave NAFTA (or whatever Trump calls it) just because it has a new FTA with Israel.

Our ex-army Economics master assured us that the word ‘snafu’ stood for ‘self non-adjusting f*** up’. Assuming Britain is not willing to, at least partly, raise anchor on Northern Ireland, the equation is simple:

Independent and seamless UK + Borderless Ireland = Permanent Error.

Who IS going to check on the Irish side?

If Britain leaves the EU Customs Union (which is a fundamental of Brexit because it will enable Britain to throw off the shackles of agreements with non-EU countries that benefit other members of the EU and not Britain), it will presumably sue for an FTA with the EU. But – even if the British decide to turn a blind eye to imports from Ireland –  who is going to check the Rules of Origin on the Irish side on behalf of the entire EU?

Boris Johnson promises technology – a grander version, I suppose, of the automatic supermarket check-out trolley we have been keenly awaiting for years. There is only one problem – what they need is still the stuff of science fiction (probably not forever, but time is not on their side).  

Mr Johnson – there is a less fanciful solution, but only if the British are willing to leave it to the Irish:

 Leprechauns.

Eurotunnel vision

He was too busy womanizing to care.

After arriving in London en route to America, an acquaintance’s grandfather decided to kill time at Speakers’ Corner in Hyde Park. It was 1906, and he, similar to my own grandparents, had fled a pogrom in Russia. Despite having his heart set on New York, he changed his mind when he heard an itinerant speaker slagging off King Edward VII from his soap box. A country that tolerated open criticism of its monarch was a country in which to seek asylum.

Britain has a long and marvelous self-deprecatory tradition of not taking itself, or anyone else, too seriously. Ideologies were for other mad-cap countries to self-destruct with (even the post-war surge in socialism was quickly diluted to something more essentially British). So, when Charles de Gaulle said ‘Non!’ to Britain’s entry into the European Economic Community in 1967, despite Britain having been instrumental in saving his country from speaking German, he knew what he was doing. De Gaulle and his German allies were flying high, out to create something idyllic, and they didn’t need the English bringing them back to earth.

Britain’s next prime minister not taking himself too seriously

Since finally joining Europe in 1973, the British have periodically forced an emergency landing (or, at least, lowered the altitude of such lunacies as the single-currency Euro project), but now that Brexit is in the air, they have also made the mistake of splitting into two ideological camps. Amidst all their own dogfighting, they are missing a lot of the nonsense of Europe.

A recent example should serve the point.

British tax law has an eminently sensible provision permitting the deferral of capital gains tax on the transfer of assets within a UK group. Nothing left the ‘business’ so why prevent the transfer or penalize it with a tax charge? Only when the asset is actually sold outside the group would the tax crystallize taking into account the amount deferred.

Her Majesty’s Revenue and Customs (for, despite General de Gaulle, members of the Union are still responsible for their own fiscal management) held that an asset transfer by a UK company to its Dutch parent company triggered tax, since it was outside a UK group. The assessee said ‘Non!’ and the matter was taken to a First Tier Tribunal (Britain’s lowest tax court). Despite its own evident embarrassment, the court was hit by turbulence, and sided with the assessee.

Why?

One of the fundamentals of the European project is ‘freedom of establishment’. Article 49 of the Consolidated version of the treaty on the functioning of the European Union (yawn!) states:

Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.

Bottom line – the court felt it had to permit the transfer of the asset to the Dutch parent free of tax, knowing full well that there was no system in place to ensure that, when the Dutch company sold the asset outside the group, Britain would receive its share of the booty. While a form of installment payment was considered appropriate – it didn’t seem to meet European legal requirements,  and was ignored.

Their relationship was never going to work

There is no logic in any of this. With pragmatic Britain’s exit from the EU, de Gaulle’s legacy may finally reach its logical conclusion. Sacre bleu!

Dead Wrong

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April fool!

It’s bad enough that, thanks to the controversy surrounding Brexit, the average Briton no longer lives with peace of mind. From April 1 they will no longer die with peace of mind.

A headline-grabbing exaggeration perhaps, but probate fees for opening a file to deal with a deceased person’s estate are due to jump from £155 to, in some cases, £6000 from next week. While the government insists it is a fee – in order to avoid a legal requirement to include it in the annual Finance Act – the Office for Budget Responsibility announced on March 15 that it would be included, alongside Inheritance Tax, as a tax for statistical purposes.

Her Majesty’s Revenue and Customs  has been administering the controversial – and widely hated – Inheritance Tax since its inception in 1986.

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The Twilight Zone?

As in other countries imposing an Estate Tax or Inheritance Tax (there are many that have either cancelled or never adopted either) UK Inheritance Tax is  controversial for the wrong reasons. It is argued that it represents a double tax on already-taxed income, while at the same time not bringing in much revenue (other than from the good dead people of Guildford, the recently crowned inheritance tax capital of Britain). The first argument cries out for a different spin, and the second (it represents around 1% of tax-take) may anyway cease to be valid in the years ahead.

As taxes go, an Inheritance Tax makes a lot more sense than an Estate Tax.

An Estate Tax imposes tax on the estate of a dead person – beneficiaries receive what is due to them out of the post-tax value of the estate. There is, unquestionably, an element of double tax (although the likes of Thomas Jefferson and liberal philosopher John Stuart Mill gave the finger to that), and the fact that estate tax planning is entirely within the bailiwick of the donor (subsequently the ‘dead person’) such tax can often be minimized.

An Inheritance Tax imposes tax on the beneficiaries. In that case, the double tax argument is weakened – the dead person passes on their estate free of tax (but without a tax deduction for the transfer as they, rather than society, decide who is to receive it) and the beneficiaries – similar to the winner of a lottery – pay taxes on their windfall. As regards the level of collections, imposing tax on the beneficiaries also puts something of a spanner in the works of aggressive tax planning during the donor’s lifetime.

There are two types of inheritance tax  – accessions and inclusion. An accessions tax system provides the beneficiary with their lifetime tax-free inheritance threshold, and hits them with the prescribed rate of inheritance tax on  the balance of what they receive from any number of donors, while an inclusion tax  charges beneficiaries according to their marginal income tax rates  (plus an inheritance surcharge). While inheritance tax is always fairer than estate tax, the inclusion tax system is the fairest of them all – as it clearly works in favour of beneficiaries of smaller amounts and/or lower income.

Furthermore, in all cases (Estate Tax and both types of Inheritance Tax), the increased exchange of information between tax authorities mean it is increasingly difficult to hide assets ‘abroad’ – which should also substantially serve to increase the revenue collection.

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‘More tea, guv?’

Britain claims to have an Inheritance Tax. The problem is that – to all intents and purposes – no, it doesn’t. It has an Estate Tax. The government website (Gov.UK sounds like an initiative of the Kray Twins) talks to the donor. Other than in specific circumstances the tax is claimed from the estate. The tax-free threshold is given to the estate – and even in the case where specific gifts are given outside the will in the 7 years prior to death, they get first benefit of the tax-free amount. And the tax rate is fixed.

So, why is it called an Inheritance Tax?  We shouldn’t complain. At least it is called a ‘tax’ as opposed to the Probate Fee, which is a tax but the government can’t afford to call it that. And what about Her Majesty’s Revenue and Customs?  Isn’t it a tax authority?

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At least they still call it a ‘tax’ return

Perhaps we shouldn’t ask too many difficult questions of a country with a tax year-end of April 5th.

Keep Calm and Carry On

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About as intellectual as it got

The British have always been a supremely pragmatic people. It was thanks to a fickle king that they knocked religious hegemony on the head early on, and thanks to another misguided monarch that they got their revolution out of the way before the Rousseaus, Marxes and Engels of the world could fill the vacuum with an ideology. Indeed, it was the utterly pragmatic empiricist John Locke who tidied up the mess in the latter half of the seventeenth century.

It is, therefore, no surprise that – despite the cataclysmic events in Parliament surrounding Brexit – the British Government has been beavering away, preparing for the morning after (which, because Brexit is planned for the night of Friday March 29th, will be effectively Monday April Fools Day).

The big news from Davos last week was that Britain and Israel have confirmed ‘in principle’ a Free Trade Agreement similar to that enjoyed between the EU and Israel. With £10 billion of trade, that is eminently sensible for both parties. What received less coverage was the signing  a few days earlier of a protocol to the double taxation agreement between the two countries that dates back to 1962.

Protocols amend treaties. Hearing the words ‘protocol’, ‘tax’, ‘treaty’, ‘Israel’, ‘UK ” (not strictly a word) in the same sentence came as no surprise to my tax-attuned ear. What with all the OECD changes in respect of Base Earnings and Profit Shifting (BEPS) and the automatic exchange of information, protocols are the name of the day. The media reports (that all appeared to stem from the same press release) gave a few details of new provisions and mentioned the obvious. It was only when I downloaded and read the document (who, for heaven’s sake, ruins the party by reading primary sources these days?), that I realized the enormity of what had happened. Perfidious Albion, God bless her!

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What an interesting job

Israel and the UK initialed a new treaty to replace the 1962 one way back in 2009. I remember it well, because I was informally consulted just before initialling, and found a couple of boo-boos. In order for a treaty to take effect, each country needs to take it through whatever processes its domestic law requires – but the stages are identical: initialling, signing, ratifying. In the UK, following the signing,  an Order in Council is issued. That is a process where a Government representative rattles off the wording of a load of boring regulations while the Queen listens (yeh, sure!) and, in the case of a tax treaty or protocol, it goes to a delegated  legislation committee, where it is considered and then brought before Parliament. It can then be ratified.

The 2009 treaty hit a total snafu after initialling. The original 1962 treaty bore the wording: ‘the term “Israel” means the territory in which the Government of Israel
levy (sic) taxation’, and  ‘the terms “resident of the United Kingdom” and “resident of Israel” mean respectively any person who is resident in the United Kingdom for the
purposes of United Kingdom tax and any person who is resident in Israel for
the purposes of Israel tax’. It was widely understood that somebody in London (I hazard a guess, from the Foreign Office) decided that Israeli residents of Judea and Samaria aka the West Bank aka the Occupied Territories should not be included. That was never going to pass muster with  the Israeli Government, and both sides got back in their trenches for the next decade.

But, times change, and these days it might be cheekily argued that go-it-alone Britain needs Israel more than Israel needs Britain (although Britain is still a very-nice-to-have). And that treaty is seriously prehistoric. Meanwhile, as Professor Emeritus of Empire Building, Britain had to watch its step.

Then came the Eureka! moment. It was time to sign protocols with treaty partners. A month after  the UK’s High Commissioner in Cyprus signed with the Cypriots, a British government representative signed with the Israelis. But, there was a subtle difference. The Cypriot protocol ran to a familiar 3 pages; the Israeli protocol ran to an eye-boggling 19. The British and Israelis had effectively shoehorned the long-dormant new treaty into the Protocol, simply passing over the naughty bits.

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I wonder if Mel is one of George’s

The signatory for the British Government was one Mel Stride, Paymaster-General – a name and title which, together with the plot, could have come straight out of a John Le Carre novel.

All that now remains is for the Queen to cock a deaf’un, and for Parliament to be pre-occupied with Brexit. (Israel also needs to ratify).

As regards the new provisions, they can be easily found popping up all over the internet in the same form as they were initially announced.  What seems to have escaped the journalists’ attention is the long-awaited exemption on UK pensions received by Israeli residents (as opposed to the highly-specific exemption from withholding tax on interest and dividends to Israeli pension funds, which was included). New and potential expats, benefiting from a ten year tax exemption on foreign sourced income in Israel,  should be talking to their advisors.

FANGs ain’t what they used to be

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Repairs courtesy of the Information Superhighway

Facebook, Amazon, Netflix and Google, the tech giants collectively dubbed the FANGs, are hardly going to be digitally quaking in their virtual boots over British Finance Minister Phillip Hammond’s Budget announcement last week that he plans imposing a 2% Digital Services Tax on their UK related turnover. Hammond himself admitted it would only be expected to bring in around £400 million a year, the amount he coincidentally just allocated to filling pot-holes on Britain’s roads.

The UK is not alone in taking the ladle to the primordial soup of  the evolving digital economy – Australia, France, Israel, Hungary, India, Italy (and the UK itself with its Diverted Profits Tax) are already at the feast, due to be joined by the EU when it is finally sick of wasting its time trying to eat the UK for Brexit.

Hammond’s hammering of the Goliaths earned kudos across the entire spectrum of British society (even the Tory-hating Guardian gave grudging praise) – but nobody seemed to pick up on the gaping irony of the whole thing – the use of a neolithic method to  tackle a state-of-the-art problem.

Egged on by the 2013 G8 Summit in Northern Ireland (to the non-Catholic citizens of which, I unreservedly apologize for using ‘British’ interchangeably with ‘UK’), the OECD and  the rest of the world (apart from a possible few smelly islands once – and probably still – frequented by pirates and other undesirables) have been engaged in tackling the unfairness of the international tax system. I, for one, started out sceptical that anything could be achieved. Country-by-country reporting, the MLI modifying tax treaties, and changes in the Permanent Establishment definition are just some of the impressive advances that have been made in the last six years in the BEPS (Base Erosion and Profit Shifting) project, not to mention (sorry) the automatic exchange of information.

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California is still part of the United States

But, there are two major gaps – the United States’ lack of enthusiasm when it cottoned on that it was a large part of the problem the others were trying to solve, and the reform  of the taxation of the Digital Economy – which happened to be the first of the 15 Actions listed by the OECD.

The international tax system is founded on two principles established a century ago – ‘nexus’ and ‘profit allocation’. The first is supposed to determine where business is done, and the second, how to divide the spoils between the places of business. Fitting the digital economy into this framework is not easy. In trying to establish where value is created, three challenges have been identified: nexus, data and characterization. The first suffers from what is pompously termed ‘ scale without mass’ – you don’t need much physical presence in a country to do business these days; the second raises the question of the interactivity of data exchange – if a social platform is using data gathered from members, where  the income arising from its exploitation belongs; and the third recognizes that the world is changing constantly and the classification of income needs constant updating.

In trying – so far unsuccessfully – to reach a consensus, the participating countries have broadly divided into three groups: those that believe the problem is confined to specific business models involving user participation in data (eg Facebook’s), that need to be dealt with individually; those that believe there is no problem (if you think that is strange – consider how long it took countries to realize there was going to be a Second World War); and those that think everything is completely screwed up, and we need a revolution (hopefully only in international taxation, which can be achieved using pens rather than swords). The OECD has kicked the can down the road (a game my generation played before digitalization condemned children to little screens) with the hope of reaching an agreement by 2020. Given the ‘slight’ differences between the participants, it doesn’t sound like we should be holding our breath – but I have had egg on my face before.

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Which wireless age does the new UK tax belong to?

So, in the meantime, nations like the UK have been driven to adopting recessive taxes that would have been more familiar to the 18th century than the 21st. Its approach to the digital economy is to throw income tax out of the window (or should that be Windows?) in favour of a tax on turnover, that looks far more like the excise duty stuck on barrels of rum that smugglers didn’t manage to secrete in coves along the southern coast of England. (In fairness, it is only to be applied to companies with worldwide turnover of over half a billion pounds, and there will be exemptions for loss making companies and those with low margins).

As an English playwright wrote four centuries ago: ‘O for a muse of fire, that would ascend the brightest heaven of invention’. And I doubt he paid any taxes at all.

Yes, Minister

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Keep it simple…

Looking confused next to the overhead locker of my assigned Business Class seat on a British Airways flight from Heathrow to New York last year, I was approached by a helpful flight attendant (if that is what stewardesses are called these days) who offered assistance. Pointing to the little picture indicating which mini-compartment was 12A, and which 12B, I told her I was unfortunately pictorially dyslexic. She looked momentarily sympathetic before bursting out laughing: ‘What do you mean, pictorially dyslexic? There is no such thing!’

For all I know, she was right.

The fact is that our brains have become so used to hard-edged information being pureed into easily digestible mush, that many of us find it hard coping with anything more taxing than a Facebook intelligence test. (I was recently informed I had an IQ of over 160 because I knew a photograph was of Adolf Hitler, rather than the other choices of Donald Trump and Michael Bloomberg. Surely everyone knows that neither Trump nor Bloomberg has a  moustache.)

If you think I am being unfair, take literature. In this day and age, if you want to be published, you have to keep sentences short, and multiple adjectives locked up. So, you would think that chucking the following paragraph – which doubles up as a sentence – at the reader on the first page of a 500 page novel might have condemned the author to obscurity:

‘In consideration of the day and hour of my birth, it was declared by the nurse, and by some sage women in the neighbourhood who had taken a lively interest in me several months before there was any possibility of our becoming personally acquainted, first, that I was destined to be unlucky in life; and secondly, that I was privileged to see ghosts and spirits; both these gifts inevitably attaching, as they believed, to all unlucky infants of either gender, born towards the small hours on a Friday night.’

Thankfully, the book saw the light of day  in 1850, not 2017, and  David Copperfield became one of Charles Dickens’s most-loved novels.

Until fairly recently, I believed that one area of intellectual pursuit that had escaped the brain surgeon’s knife was taxation. Taxation is complicated, and advisors have kept it complicated. How often have we watched with satisfaction as our clients’ eyes have glazed over, knowing at the end of a tortuous meeting that they will just tell us ‘to deal with it’?

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…or not.

 

Then – Shock! Horror! – in 2010 the British Treasury came up with the Office of Tax Simplification. 450 recommendations later – including such game changers as simplification of the corporation tax computation and out-of-date procedures still requiring paper confirmation for stamp duty transactions (themselves an anachronism) – the OTS published its first annual report. Apart from a ‘first annual report’ issued seven years after inception being a leading candidate for the accolade ‘the triumph of hope over experience’, the wording itself left hope for tax professionals:

‘The OTS is in a unique position to highlight issues, stimulate debate and act as a catalyst for positive change, being strongly connected within government, having exceptionally wide access to a range of deep expertise from outside government and speaking with an independent voice.’

Charles Dickens couldn’t have written a better paragraph (doubling up as a sentence) himself. In fact, it almost looks like the Office of Tax Simplification could come to rival Little Dorrit’s Circumlocution Office.

The spirit of Bleak House’s Jarndyce and Jarndyce lives on. Mercifully.

 

Brother, can you spare a dime?

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Not quite Laurel and Hardy

He is best remembered through the prism of the witticisms of his arch-rival, Winston Churchill: ‘A modest man, who has much to be modest about’; ‘A sheep, in sheep’s clothing’; ‘Up drew an empty taxi, and out stepped…’, but Clement Attlee, the fiftieth anniversary of whose death is being marked this year, had many arrows to his bow. His sound defeat of Churchill in the 1945 election heralded in the Welfare State and wholesale Nationalization (including the Bank of England, coal and steel, and the railways), which changed Britain forever. Even Margaret Thatcher, who staked her claim to a place in history on unravelling much of what Attlee had done (with mixed results – someone recently suggested that Virgin Trains’ motto should be ‘The first time is always the worst’), referred to him as, ‘all substance, and no show’.

Fast-forward seventy years and it seems everyone, apart from the Americans, talks the talk about looking after the weaker elements in society and redistributing income, but doesn’t walk the walk of being willing to pay the price. There is more show than substance.

The latest evidence comes from that country up there in social Valhalla, Norway.

Six weeks ago the conservative government introduced a Voluntary Tax Payment Program. When I first read this, I assumed it was a Voluntary Disclosure Program for naughty Nordics – but no, it is what it says. If, after paying nearly 50% tax, you fancy paying some more, your contribution will be gratefully accepted by the government.

Well, according to the latest available statistics (at least, available to me), the total take has been around $1,500 – which includes tax lawyers and accountants making small contributions to see how it works (and, it has to be assumed, claiming their payments as a business expense). It also turns out that this is not Norway’s first voluntary payment scheme – they set one up in 2006 to which around 90 people have, to date, contributed a total of $85,000 – all, curiously,  anonymous ‘donations’. This might sooth a tax evader’s conscience while financing a government minister’s sleigh expenses, but it won’t do much for the relief of the poor.

When push comes to shove, the vast majority of people pay taxes because they have to, whatever their political hue, and high taxes are a toxic election loser. Only the Americans tell it as it is. The main reason for their dogged refusal to adopt VAT is considered to be the ease with which additional revenue could be raised resulting in ‘inflationary’ pressure on government spending, with the dreaded prospect of turning America into a European-style welfare state.

Modern attitudes are perhaps neatly reflected in a statement by a left-leaning political pundit on the reason for the large turnout of Labour-supporting young voters at the recent British General Election. Referring to the inability of the young to step onto the home-owning ladder due to the exorbitant cost of housing, she said: ‘They didn’t vote conservative, because they have nothing to conserve.’

Back in 1945, despite the Conservative Churchill’s massive personal popularity and acerbic witticisms, there were less egocentric reasons to elect Clement Attlee and his Labour colleagues.

Was the Battle of Europe lost on the playing fields of Eton?

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What was that about Freedom of Movement in the EU?

‘History doesn’t repeat itself, but it often rhymes.’ That aphorism, attributed to Mark Twain, has been much on my mind  lately.

Anybody wanting to get inside the minds of the wrong-headed majority that tragically voted the UK out of the EU (and probably lit a fuse to both those abbreviations) could do worse than read one of Dickens’s less known novels, ‘Barnaby Rudge’, about the Gordon riots against Catholic legislation.

Although the situation in 1780 became violent while last week’s referendum ensured peaceful mob rule,  the cynical manipulation and ignorance that led to the riots should have been a cautionary tale taught to every schoolboy and schoolgirl  in the last century and a half.

In the weeks, months and years ahead experts will assess the carnage to be irrevocably wrought on the UK and Europe, .

From a tax viewpoint, the immediate damage would appear to be to the UK Holding Company regime, as well as Finance Companies and IP ownership. This arises from the future removal of the parent/subsidiary directive, and interest and royalties directive. These two directives guarantee exemption from dividend withholding tax and withholding tax on interest and royalties, respectively,  when paid by the other 27 EU countries to the UK. Following the UK’s withdrawal from the EU, withholding tax will be applied according to treaty. This will mean that Holding Companies, exempt from tax on their dividends, and Finance Companies and Patent Box companies paying low tax, will be at a disadvantage compared with EU jurisdictions. As the UK does not withhold tax on dividends according to domestic law, the UK is currently very popular as a holding jurisdiction – a popularity that is likely to disappear very quickly (like, tomorrow morning).

Thanks to the OECD’s BEPS project, most other disadvantages of the Brexit will already have been swept up in wider international agreements, while there may be some small advantage in not being penalized by the EU for offering State Aid to companies.

It is well known that Boris Johnson and David Cameron studied at the same elite school. While the Duke of Wellington may have declared that the Battle of Waterloo was won on the playing fields of Eton, it would appear that  the Peace of Europe may have been lost on that same dot of England’s green and pleasant land.

It’s simply not cricket.

Pupils huddle during the Eton Wall Game at Eton college in Eton, near London

Meeting of a future Tory Cabinet

 

 

 

 

The Party’s Over?

Exhibit A

Exhibit A

The most poignant scene in the aftermath of the British General Election was defeated Labour leader Ed Milliband’s ‘victory’ speech at the declaration for his  Doncaster constituency. True to custom, he used the opportunity to recognize the enormity of Labour’s defeat, and effectively conceded the election. But it was not the words of this left-wing, intellectual misfit’s eulogy that got me; it was the fact that behind him stood fellow candidate Nick the Flying Brick of the Official Monster Raving Loony Party. As Milliband all but resigned the leadership of his party, it was as if fate had decreed that Labour supporters look carefully into the eyes of the nutter at his rear, ready to step up to the plate and probably give the Labour party as much chance of election in 2020 as Red Ed had now. Although the Party Manifesto was centre-left, just about everybody –  the ‘somebody-help-me’ areas of the North and  their brother inner-cities that returned Labour MPs, and everywhere else that did not – seemed to believe that Milliband’s gang would not manage to keep their high-taxing, statist paws behind their backs.

It was King Solomon in Ecclesiastes, later echoed by The Byrds, who told us that there is a time for everything. Well, there was a time for statism. Had I been voting 100 years ago, I may well have voted for the Labour Party. The Liberal Government of the time  had been the most radical government in history, bulldozing reforms for the benefit of the wider  population in the pre-war years. But, by the time the Great War  was over, its coalition with the Conservatives had (you’ve heard this one before) guaranteed its obliteration. The  Labour Party was still embryonic immediately after the First World War, but it came fully into its own after the Second. When I did vote 30 years ago, I chose Social Democrat (ie Liberal Democrat in today’s sad terms). It was time for a change in the mix of the mixed economy,  gradually working away from the statism of the post-war years. Had I been able to vote in the  election this week, I would have voted Conservative. The country has changed beyond recognition.

It is more understandable with the Greeks

It is more understandable with the Greeks

The challenge of the 21st century is not the exploitation of labour by the owners of capital; it is the fast-approaching lack of need of labour by the owners of capital. The world needs new solutions to old and new problems  (including the perennial wealth gap), all within the concept of a global economy. The tired old mantras cannot and, indeed, should not be allowed to persist. If anyone doubts this, they need only look at the Official Monster Raving Loony Syriza Government in Greece – a Greek Tragedy waiting to happen.

When the Greatest Generation came back from the Second World War, there was an urgent need for mass employment and the rebuilding of the country. The British Electorate, unswervingly grateful to Churchill for leading the nation to victory, brilliantly recognized the dichotomy between War and Peace, and promptly charged Clement Attlee’s Labour Party with the task. When, a generation later, Margaret Thatcher set about the necessary task of dismantling Attlee’s enterprise (albeit, IMHO, too fast), she was still able to refer to him admiringly as ‘all substance, and no show’.

Labour has elected much worse

Labour has elected much worse

Well, there were 13 years of Labour Social Democratic government under Blair and Brown. The election of Ed Milliband to lead the party in 2010 looked at the time to sane observers, not as an exorcising of the progress made in the previous two decades, but  as the swan song of the, yet unburied, left on its way to a waiting grave.  It almost guaranteed a decade-long Tory stewardship. I, for one, never feared that the British electorate would be stupid enough to send Milliband to Downing Street. It wasn’t. The leadership election in the coming months will probably decide whether it is only a decade. Let’s just hope that in 2020, the leader of Her Majesty’s Loyal Opposition is not an Official Monster Raving Loony Party doppelgänger.

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