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Archive for the category “International Tax”

Some like it hot

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Will this save the planet…?

Political fossil Al Gore’s sequel to his Oscar winning environmental documentary ‘An Inconvenient Truth’ – ‘An Inconvenient Sequel’ – may have underwhelmed at the box office this month, but it provided a timely counterweight to President Donald Trump’s announcement some weeks earlier that the United States was pulling out of the Paris Agreement. Despite the protestations to the contrary of substantially every-government-that-is-not-America’s (as well as several of the States that enable the United States to be called the United States), without Federal US involvement all bets for preventing environmental Armageddon appear to be off.

Until recently, the Tax World’s contribution to the fight against this threat to our future generations had taken the form of airing the concepts of ‘Cap and Trade’ and ‘Carbon Taxes’ – the former involving the auction and trade of emission permits that seek to limit total pollution from certain gases, the latter a hit or miss, essentially regressive, tax on fossil fuels and suchlike.

Then, last month, things hotted up.

In his State of the Nation address, President Rodrigo Duterte of the Philippines told mining companies that ‘he would tax them to death’ if they did not clean up their act. Coming from anyone else, the statement might have been filed alongside Benjamin Franklin’s ‘nothing can be said to be certain, except death and taxes’, but Duterte has, for some time now, been proudly having drug pushers and other undesirables knocked off wholesale in extra-judicial killings. The message is clear – the president clearly reckons himself the biggest threat since Mohammed Ali throttled Joe Frazier in the Thrilla in Manila.

Indeed, Duterte also announced that, you-couldn’t-make-up-its-name, ‘Mighty Corp’ has agreed to pay the government a cool half a billion dollars to settle the mining giant’s alleged catalogue of criminal tax evasion offences. Simple when you have the method sussed.

And, to cap it all, any additional tax take from the mining sector is to be earmarked for local communities damaged by the mines, while processing of mineral resources is ‘requested’ to be performed in the Philippines before export, thus adding to employment.  Interesting, if worrying.

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…or will this?

With all due respect to Mr Gore’s valiant efforts, if the environment is to get back on track, the mob that elected Trump doesn’t need a staid documentary – it needs exciting Alternative  Facts. So, perhaps the real existential question now is whether there is enough material for Quentin Tarantino to make a movie about taxing environmental terrorists. The climactic scene: an Internal Revenue Service agent, in sleek black suit and Ray-Ban shades, standing with his foot pressuring the windpipe of a prostrate business executive, two revolvers cocked and pointed at the entrepreneur’s trembling head, spits, ‘You’re going to clean up the river in this goddamn town, or we’re going to tax you to goddamn death’.

All’s fair in love and war. And, if Mr Tarantino is looking for a working title, how about: ‘Kill Fake Bills’?

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.

There is an i in America

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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.

Doing it the people’s way

BESTPIX  U.S. President Barack Obama Visits Ireland

‘You’re not drunk, if you can lie on the floor without holding on.’ Dean Martin’s witticism has haunted me over the last couple of years as I have watched the impending self-destruction of the country of my birth (Brexit, the inevitability of a future Corbyn government), the temporary set-back to the United States (The Donald, the quack Republican leadership), and the reckless election of a National Assembly of Jeanny-come-latelys in France to rubber-stamp a completely untried new president. The world is becoming totally sozzled (heaven knows what is going to happen in the German and Italian elections) – and the tipple is the obsessive thirst of the mob for raw ‘knowledge’ that is used and abused to satisfy a primeval urge to thump those who thought they were in power.

It is no surprise that the parallel tax world is not immune to this troubling phenomenon.

Back in the good old days (four years ago, to be precise), when the British had a stable government and the Americans had a president who could string two words together without having to resort to ‘great’, the G20 of (then) sane countries instructed the sane OECD to come up with a sane framework for combatting tax avoidance and evasion, while individual members came up with a few ideas of their own. This call to action came in the wake of disclosures of perceived unsavory international profit shifting by certain multi-nationals. BEPS Action 13, dealing with Transfer Pricing, and the Automatic Exchange of Information had one thing in common – information was to be exchanged discretely between the tax arms of governments who would give it their expert attention.

Even then, there was a small breach in the wall of discrete sanity– Cameron decided on a Beneficial Ownership Register OPEN TO THE PUBLIC. It has been downhill ever since.

The EU Parliament – about which Kipling might have said: ‘Power without responsibility: the prerogative of the harlot throughout the ages’ – this month legislated for PUBLIC AVAILABILITY of multinationals’ country-by-country transfer pricing reporting, as well as recently delivering on Cameron’s dream of an open Beneficial Ownership Register.

If you are not a tax specialist, this may all seem eminently sensible. Make public as much information as possible, and then use the public sphere to bash the avoiders and evaders to ensure that everyone pays their fair share of tax. You are in good company – Brexit, Trump, Corbyn and Republique-En-Marche seem eminently sensible to large swathes of the populations of three of the most advanced nations on Planet Earth. But, my hunch is that most of the discerning people reading this don’t think much of the large swathes.

There is a fundamental problem here. Feeding the mob with incomplete information, or information they are not programmed to fully analyze, will create distortions that are bound to affect the efficiency of the markets, and lead to loss of privacy in totally legitimate situations. In short, public, populist, semi-informed opinion will almost certainly get it wrong. Is tax planning automatically wrong, even when it (legally) irons out patent errors in half-baked legislation? Do a Scandanavian’s potential in-laws need to know how much money he has when planning a wedding? Is hiding ownership from public view undesirable in countries where ‘kidnapper’ is a school leaver’s career opportunity? Far better to leave it to the regulatory authorities (tax or banking) of the world’s nations to share and compute the information, and do the work of their masters, the representative governments. It is in the interest of each state to ensure they receive their fair share of revenues, while clamping down on money-laundering. Can Mob Rule beat that?

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Alexander Pope said: ‘A little knowledge is a dangerous thing’, Dean Martin’s Ratpack colleague sang: ‘I planned each charted course; Each careful step along the byway.’ The world could do worse than heed the words of both gentlemen.

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

holy-grail-knight

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

 

 

 

 

Let slip the dogs of war

Even the Portuguese have a Triumphal Arch (what for, exactly?)

Even the Portuguese have a Triumphal Arch (what for, exactly?)

I have just emerged from a fascinating two-day conference in rain-soaked Lisbon. Despite the headline title, the real theme was inevitably the prospects for the Base Erosion and Profit Shifting project of the OECD, the rump of which is due to be approved by the G20 shortly.

The public proclamations on BEPS have displayed populist triumphalism while, in the course of the two days – to anybody who had any doubts before – it became clear that the actual prospects are far more modest.

Firstly, by not allowing the Americans to think this was an extension of their work on FATCA, the OECD didn’t manage to bring them to the party. The Americans never join anything anybody else comes up with first – take the Second World War, for example, where the fun only started after Pearl Harbor.

Secondly, by making the Digital Economy the flagship topic, even if the Yanks had been convinced it was all their idea, they were not going to Kamikaze pilot themselves into their own ship – all Digital Economy reforms are, by definition, anti-American.

Thirdly, as two former senior politicians, gentlemen who almost gave me back the naive faith in politicians of my youth, made blatantly clear – no nation, be it America or the other God-knows-how-many countries currently on Earth, was going to give up on any serious opportunity to tax.

Then there was Pascal Saint-Amans, the Frenchman behind the BEPS project, who  explained how he had charismatically convinced everybody to accept his proposals. It was a case of working towards ‘consensus’ rather than ‘unanimity’. And that says it all. Never trust a Frenchman with your wife or long English words. Consensus is a synonym for unanimity. He was trying his luck on us, a group of grey accountants, for whom words are things to be kept under the bed (where the Frenchman may also be hiding). Obfuscation (go on Pascal, look that up in your Collins English-French Dictionary) seems to have been the name of the game. Sell the OECD a pile of words and confuse everyone into thinking something is happening. People may think Saint Amans has worked miracles (if the Pope canonises him will he be Saint Saint-Amans?), but the real deliverable looks a lot more down to earth.

That is not to say that BEPS is a failure (you may be wondering, after all I said above, how I am going to climb out of that one). Transparency – Country-by-Country reporting, international exchange of rulings, examination of holding and conduit companies, and dispute resolution will all become reality, alongside the unrelated Automatic Exchange of Information.

But, sorry Pascal, you don’t get all the credit for that.

BEPS was trumpeted as the first major breakthrough in international taxation in a hundred years. In reality, there has been some breeching of the fortifications, but no breakthrough.  Thanks to populist ‘uprisings’ following the 2008 Financial Crisis, taxation has been under the spotlight. Transparency is the minimum required to appease the masses, and even that would probably  have fallen  apart had it not been for the American obsession with FATCA. Many mistake the noise made by the British and French legislatures over the lack of tax being paid by American multi-nationals as part of the equation. Wrong. These are unilateral acts by Governments looking after themselves – the diametric opposite of the BEPS philosophy.

The G20's greatest internationalist

The G20’s greatest internationalist

The end result looks remarkably like the Allied approach to the Second World War. Frenchman Pascal Saint-Amans, like General De Gaulle,  made a lot of noise, was overrun, but declared victory. The British plodded on alone trying to break the multi-national enemy. And then the Americans came in and did whatever they wanted. I am not sure where the Russians fit in – but let’s wait and see what surprises Putin has up his sleeve if he is invited to the G20 summit (which, otherwise, will not be the G20). Interesting tax times.

 

Cogito ergo sum

Good old British liberal education

Good old British liberal education

Arguably, the greatest contribution to society of a liberal education is perspective. ‘Dah da dah da dah. DISCUSS’ was the way it went when I was at school, as opposed to the ‘A, B, C, D, E. Tick one’ of the modern era. Today, July 14, is only significant to the vast majority of the world’s population for being the day after July 13 and the day before July 15. In France, it is a national holiday. Back in 1989, the bicentenary of the storming of the Bastille, it was Oxford educated Margaret Thatcher who pointed out in an interview with Le Monde that: ‘ ”human rights did not start with the French Revolution,” a perspective the French were not prepared for.  Fortunately for the Iron Lady, she was guillotined by her own Government the following year, before the furious French could get their act together. Earlier today, the massively anticipated sequel to Harper Lee’s ‘To Kill a Mockingbird’ hit the bookstores. The fictional superhero of my youth ( along with Clark Kent and Bruce Wayne), Atticus Finch, now turns out – in his author’s eyes – to have been a bigot. We all missed that one.

So, with the gradual movement from education to knowledge cramming, it is perhaps no surprise that the entire tax world is out on a fanatically dogmatic witchhunt, not even stopping to breathe and get the whole thing in perspective. And it is embarrassing.

I refer, of course, to the twin tax bugbears of western society, BEPS and Automatic Exchange of Information. Europe (did somebody whisper OECD?) has decided that American (did someone say ‘foreign’)  companies pay scandalously and imorally little tax in their jurisdictions, and the world’s leading economies (did someone shout ‘the entire world’?) are singlemindedly trying to sort this out (with a constant look over their shoulders to check if the Americans are going to throw a wobbler and crush the whole thing). Meanwhile, thanks to the Americans (who feel that – far from taking too much tax away from the Europeans – their taxpayers are hiding their income there),  everybody is trying to make sure that their tax residents declare all their ill-gotten gains.

He tried to take shares in somebody else

He tried to take shares in somebody else

Dogma rules. If this can be sorted out, we are told, the world will be a fairer place. Perhaps. But there are two small issues here that should have been factored in. Firstly, it is by no means clear that companies should pay tax.  While Shylock could ask, ‘If you prick us, do we not bleed?’ joint-stock companies, like Pinocchio, do not have the same luxury. Companies are a legal fiction – the Walt Disney of the business world. As they do not have feelings (an accusation often aimed at me), they cannot suffer taxation. Taxation is paid by flesh and blood people – it is the customers who pay higher prices , the shareholders who make lower profits, and the employees who receive lower income. The company just sails on regardless – and, if it dies, does not even warrant a marked grave. There has always, therefore, been a strong movement to abolish company taxes in favour of taxes on individuals – income tax, withholding tax, value added tax. Company taxes, it is argued, distort economic performance.

Secondly, while the search for the hidden treasures abroad  of individuals is highly laudable,  white man speaks with forked tongue. The latest example of Orwellian Doublespeak is last week’s British budget where non-domicile status (institutionalized tax avoidance) was, with much fanfare, marginally tweaked. Rich foreigners will still be able to enjoy the English weather for substantial periods.

While BEPS and Automatic Exchange of Information are undoubtedly an improvement on the international tax scene that has been around until now, they are not a Utopian goal resulting from deep thought and discussion. They are  the result of an ‘I want’ philosophy of the electorates of the world’s leading nations. The elimination of company tax is controversial and may be totally impractical, but it, and other ideas including a simple move to regressive VAT as the main source of revenue, should have been part of  the debate that never came. Instead, the new world tax order – like so much else in the modern world – is being led by populism. And populism – thanks to a biased, disingenuous and largely ignorant press – is becoming increasingly dogmatic. Look what happened to the French in the 1790s.

 

 

 

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?

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.

And now for something hardly different

Speaks for itself

Speaks for itself

The surviving members of the Monty Python team must be cock-a-hoop over the cover of the (just about) current issue of The Economist. Under the headline: ‘Europe’s Economy’, a parrot lies dead receiving an infusion, while Angela Merkel comments, ‘It’s only resting’. No further explanation required. Forty-five years on, the Parrot Sketch is part of the lingua franca.

The other instantly recognizable  Python sketch is ‘The Four Yorkshiremen”, in which a group of wealthy, aging northerners  each vie for the distinction of  most deprived childhood. In fact, that piece is almost a case of imitation being the sincerest form of flattery. It started life in the 1967 series “At Last The 1948 Show”, was adapted for the radio series, ‘I’m Sorry I ‘ll Read That Again’ in 1969, and only made it to Python in a live show in 1974.  ‘Almost’ imitation, because Cleese and Chapman were co-writers of 1948, together with Marty Feldman (the  most unlikely Jewish Yorkshireman ever) and Tim Brooke-Taylor (who did ISIRTA together with Cleese).

Tax authorities take this imitation business quite seriously, even if their material is far less original than Monty Python’s.

What's in a name?

What’s in a name?

Despite the hammering of Harmful Tax Practices, first more than a decade ago by the OECD and EU, and more recently by the OECD BEPS project and an extensive transfer pricing review, there has been an upsurge in the introduction of copy-thy-neighbour special IP regimes. To fool the enemy, they carry all sorts of different names and precise terms – Patent Box, Innovation Box, and – the latest Irish smokescreen –  Knowledge Development Box.

The ostensible justification for these schemes is the incentivization of R&D expenditure by offering reduced tax rates on associated revenue. But, with the exception of the UK innovation box, which was for self-defense, what countries are clearly doing is standing on street corners raising their skirts above their knees in an effort to attract new clients. Switzerland is proposing a scheme, as it preempts the forcible closure of its House of Ill Repute by undertaking a comprehensive tax reform. Ireland, meanwhile, no longer able to tempt Apple with its harmful double-Irish position, can at least claim not to be plagiarizing – it had the first scheme in the early seventies which it discontinued in 2010.

Innovation boxes are currently, effectively, under a three-pronged attack but are still spreading. There is Action 5 of BEPS dealing with Harmful Tax Competition – and what could be more harmful tax competition than this race to the bottom? Then there is Action 8 which deals directly with intangibles and the concept of value creation.  Finally, there is the long-running saga of OECD Working Party 6 on ‘The transfer pricing aspects of intangibles’. All these projects seek to prevent the maintenance of intangibles in ‘the second draw, third office along’.  Even if the whole caboodle gets caught up in bureaucracy and self-interest, and is not adopted internationally, something is bound to stick. And that something is likely to be the need for boots on the ground in any jurisdiction claiming the right to substantial returns due to intangibles ownership.

Where countries support large workforces of savvy individuals, the on-the-ground development  of intellectual property makes sense. But if all the country is offering is a crisp suit, a law office and a plaque, the whole thing could easily unravel.

Some called this British humour too

Some called this British humour too

A couple of years ago I made a one day trip to England to see Tim Brooke-Taylor and his colleagues doing a live recording of a long-running radio show – ‘I’m Sorry I Haven’t a Clue’. Over its forty-year run, shows have often ended with the announcement of late arrivals at some ball or other. Among the late arrivals at the Aggressive Tax Planning Ball might have been: ‘From the Republic of Ireland, Mr and Mrs O’Vation- Box and their son N. O’Vation-Box.’ You get the idea. It is called British humour. Patent Boxes and Innovation Boxes are full of it.

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