Tax Break

John Fisher, international tax consultant

Archive for the category “Russia”

Crime and Punishment

The German answer to  British schadenfreude

The German answer to British schadenfreude

Of all the words that have made it across the much-trampled terrain of Western Europe and the inhospitable waters of the Channel into the welcoming arms of the English language, one of the most improbable must be “Schadenfreude”. Adopted into the language after the defeat of Germany in the First World War and the imposition of punitive reparations, it was  appropriate that  the expression of malicious joy in the misfortune of others should be in a tongue the bastards about whose misfortune the Brits were most maliciously joyful could freely understand – the bayonetting of the wounded, so to speak.

I believe that we all  have bouts of Schadenfreude from time to time. For the last few years the Germans have been positively unbearable over the plight of the Southern Europeans. I admit that the first section I instinctively turn to on receipt of my monthly English accountancy magazine is “Disciplinary Hearings” – one day they will get the fish-faced obese manager who insisted on me making his morning coffee at the outset of my career.

There was no joy whatsoever in following the climax of the Magnitsky case in Russia last week . Despite the fact that this was a Tax Attorney convicted of major tax fraud – the sort of thing that brings our profession into disrepute (ho, ho) – there were a few mitigating circumstances.

Firstly, there but for the grace of Tsar Nicholas go I. Had George V’s doppelgänger not “encouraged” my grandparents to move residence to his cousin’s green and pleasant land in 1905 , I suppose I could have been in this fellow’s position.

Enough material for a book

Enough material for a book

Secondly, Sergei Magnitsky – along with his co-defendant William F Browder, an American/British Fund Manager and financier – was almost definitely innocent of  all charges concerning the fraudulent claiming of tax benefits for the employment of disabled persons . The two gentlemen had uncovered a massive tax fraud by government officials and decided to blow the lid on it. This was a bit like standing in a forest trying to explain to an eight foot high grizzly bear, in perfect Russian, that you had clipped its cub’s earhole because it had rudely said “Boo” to you. Not a sensible time to renew ones monthly bus pass.

But the saddest, and maddest, thing of all was that Mr Magnitsky is, well, a bit dead  – and has been since 2009 when, already a year in custody, he was denied critical medical treatment. This did not seem to be enough to stop the Russian wheels of justice from continuing to grind. Indeed, if it was not all so sad and macabre, the story would be funny.

The courtroom had the standard posse of security guards even though there were no defendants in the dock (Mr Bowder was in London and, in a rare act, Interpol told the Russians to scuttle off when they applied for his arrest. Mr Magnitsy, as I have already pointed out, had other difficulties in being present). After finding Magnitsky guilty, the judge – in an act of great courage in standing up to the rotten State – did not impose a custodial sentence on Mr Magnitsky thereby giving official sanction to his continued resting in peace.

The most brilliant, and incriminating, line came from none other than President Vladimir Pukedin as reported in the New York Times: “I don’t know the details, but I know anyway that Mr. Magnitsky died not from torture — nobody tortured him — but from a heart attack,” .  I sympathise Mr Spewtin. Forget the details. It would be unfortunate, after all,  for you to be confused by the facts, wouldn’t it? Vlad’s ventriloquist dummy Prime Minister (or whatever title the Impaler ordered him to take this week) Medvedevdevmedved etc,  told Bloomberg TV that “He was a corporate lawyer or accountant, and defended the interests of the people who hired him.”  Well Mr Medwhateveryoucallit, I think that you will discover that, beyond the walls of the Lubyanka Prison and the ranks of the KGB, that is what lawyers and accountants are supposed to do. And, if I already have your wooden ear –  it wouldn’t hurt you to touch up on your facts either. Was he a “corporate lawyer or accountant?”. Maybe tell your aides to lay off the clear liquid for a while and prepare your briefs a little more diligently.

The ongoing tragedy from this circus is that, in retaliation for a US move subsequent to Magnitsky’s death to prevent Russian human rights abusers from traveling to the United States, Mother Russia banned  the practice of adoption of Orphans by US families denying them the chance of a decent future. Go figure.

I would like to take this opportunity to thank Tsar Nicholas posthumously ( readers will recall that he ended up being peppered with bullets together with his family) for helping my grandparents with their relocation and ensuring that I grew up in a free society.

Reading “War and Peace” many years ago I learnt that Russian high society used to like speaking French, so “plus ca change, plus c’est la meme chose” – this week there was yet another Russian Show Trial.

Rest in peace

Rest in peace

Meanwhile,  President Putin is hosting a G20 summit a central feature of which is the war on tax evasion. I rest my case.

The 2012/13 Overture

Brezhnev was not the only superpower leader to have difficulties with Sharansky

Brezhnev was not the only superpower leader to have difficulties with Sharansky

In the ’70s and ’80s  there was a major movement worldwide to gently nudge the Soviet authorities to “Let my people go”. Mass rallies, protests and disruption of Russian cultural events were the order of the day from London to New York to Sydney. With the collapse of Communism, the ’90s saw the influx to Israel of   close to a million Soviet Citizens, by no means all of whom were descendants of Pharaoh’s slaves, while oligarchs started popping up in the unlikeliest of places, like the directors’ box of an unimpressive London football club.

I, therefore, found it quite dizzying when former French  actor Gérard Depardieu was spotted  bear-hugging former KGB officer Vladimir Putin on receipt of his gleaming new Russian Passport. Until last week, the only people who ever thought of moving into Russia had Christian names like Kim, Guy, Adolf and Napoleon.

The story hardly needs retelling. French bête noire  most recently remembered for urinating on the floor of a plane awaiting take-off in Paris, is so incensed by Mad Hatter President’s  intention to apply a humongous tax rate on the wealthy that he contemplates joining the rest of Peter Pan’s  lost (rich) boys in a Belgian town near the French border.

In what initially appears a stroke of tax genius, at the last-minute he diverts his attention eastward and makes a play for Russian citizenship. By moving tax residence to Russia he can swap the 75% (and then some) tax rate for 13%. Although France now has an Exit Tax for those perceived to be betraying the Fifth Republic,  the French/Russian Double Taxation Treaty refers in its nondiscrimination clause to nationals rather than residents implying that Exit Tax might not be charged.

Nice theory, but it ignores one critical factor. Depardieu is ethnically, if no longer nationally, French. Too rational.

Tailless amphibian

Tailless amphibian

Not satisfied with the  royal welcome that turned this tailless amphibian (use your imagination)  into a Russian Prince, Depardieu proceeded to chuck  his French citizenship into the Seine  while spouting nonsense about Russian democracy. The Russians, for their part, warmly welcomed their new comrade who had recently shown his Motherland credentials by appearing in a movie as Rasputin. Now, I know little about Russian history and, with all that has happened in the last hundred years,  I have great difficulty in keeping track of who is currently welcome on the podium in Red Square,  but  if there is one thing all Russia is agreed on, it is that Rasputin does not get a look-in.

In short, Depardieu just appears to have been on a typically French emotional bender that was planned as well as the Soviet economy.

Had he not been such an exhibitionist, he might have gone for one of the more traditional tax havens. Switzerland, with its lump-sum expense based system, is a particular favourite for sportsmen and actors while the UK, with its non-domiciliary status is excellent for those well planned in deriving income  outside the UK. Monaco and Andorra (wherever that is) tend to be more liberal in their residency requirements. The Channel Islands and Isle of Man offer a peculiarly British middle-class environment which would have surely suited our hero – they particularly appreciate Gauls who pee on carpets.

And if all he wanted was a new passport, for a suitable fee he could have picked up citizenship in the Dominican Republic or St Kitts, two countries even the French could have conquered had they managed to find them on the map.

As yet it is impossible to know what the unpredictable Comrade Depardieu will do. Does he really intend to sit out 183 or so days each year in Mother Russia?  Has a man who lives by the French language not realised that, whilst in Tolstoy’s St Petersburg Soirées, Pierre and his friends chatted happily in French, it is not only Napoleon who has moved on since then? Or, is he just attempting to become another of the modern world’s “Tax Tourists” who thinks he can swing  the residence tie-breaker clause in the  double taxation treaty by popping in for  an occasional  vodka while en route from London to Los Angeles? Fat chance, fat boy.

One can sympathise with Depardieu’s desire to make a break for it from France. Its economy is by all accounts (apart from that of its clownish Government) heading down a bidet’s drain. Rather than attempting to avert the crisis, the Government has adopted a policy of assisted national suicide while offering the wealthy the choice between the guillotine and exile.

Erstwhile French Icon

Erstwhile French Icon

However, it really is beginning to look like the Asterix star might live to regret his decision. One of the attributes of a tax haven is that it leaves the tax exile to get on largely unhindered with his or her life. While, as M Depardieu has proudly stated, Russia is undoubtedly a great democracy, it would be interesting to see what would happen if he chose to relieve himself on the floor of an Aeroflot airliner or, for that matter, not to turn up in court to answer a charge of driving under the influence, as was the case this week in France.

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