Tax Break

John Fisher, international tax consultant

Archive for the tag “Automatic Exchange of Information”

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.




The Battle Of The BEPS

The storm clouds were already gathering at the G8 Summit

The storm clouds were already gathering at the G8 Summit

A hundred years after the countries of Europe drew their battle lines in France and promptly got stuck in the mud, the Paris-based OECD looks like it is facing a long period of trench warfare. Originally predicted to be half-finished by Christmas, the BEPS plan – if it is to be instituted at all – will almost certainly be wrangled over for months and years ahead.

Base Erosion and Profit Shifting was always going to be an ambitious project, but when the G8 (since deflated to the G7) and, subsequently, the G20 (G19) put their weight behind it in 2013, its prospects  started to look up. At a time when major western nations were hemorrhaging taxable profits to offshore and cheeky onshore jurisdictions, there was unanimous support for clobbering tax avoidance. Although Dave ‘Selfie’ Cameron and Vlad ‘The Impaler’  Putin led the charge (Putin displaying his famed respect for international law and order), it looked clear that the Americans, fresh from their FATCA foreign account disclosure victory, would quickly take over.

There is naive, and there is naive with knobs on.

The Americans, in the persons of Rep. Dave Camp and Senator Orrin Hatch, soon realized that the companies making the most bucks around the globe owe ultimate allegiance to Uncle Sam. Some, like Apple and Google, might have successfully sheltered much of their income offshore pending repatriation to the mainland, but that could be dealt with by Congress and the IRS without recourse to all those Europeans who were not even capable of winning or losing their World Wars on their own. BEPS, while having some strong points, was ultimately an attempt to wrench taxable profits out of the hands of the Americans.

Another hybrid white elephant

Another hybrid white elephant

Battling furiously to meet the September 2014 deadline for the first part of the 15 point project, OECD apparatchiks slogged overtime to produce heaps of words on transfer pricing and country-by-country reporting, treaty abuse, hybrids and the digital economy. While the transfer pricing recommendations were greeted with derision, the hybrid proposals were so complicated that they would require more acumen to implement than went into all the previous hybrid planning. And, as for the digital economy, the OECD more or less came out with its  hands up – apart from a recommendation about raising taxation through VAT (which many of us could have happily told Dave and Vlad back at their first meeting and saved them the money).  If none of this gets off the ground, one good thing that will have come out of  it all is that the Hybrid Mismatch document includes some great ideas for future tax avoidance. Somebody at the OECD also, rather belatedly, woke up to the fact that developing countries may have specific problems implementing BEPS; the technical guys have picked up their pens once more.

The proposals are now at various stages of public consultation – for ‘public consultation’ read ‘being rubbished’.

google taxMeanwhile, thanks to FATCA, the Automatic Exchange of Information project , which is running parallel to BEPS, continues to advance rapidly through the battlefield. It may well be that,  taken together with enhanced domestic anti-avoidance legislation by individual countries, this will bring a real solution to much of the tax avoidance and profit shifting that BEPS aims to stop –  in addition to dealing with tax evasion which is its raison d’être. As we have already seen in the wake of the British Parliamentary inquisition of Google, Amazon and Starbucks, although their practices were totally legal, the ability to ascertain and publicise their financial information led to a public backlash. Modern multinationals cannot afford the bad publicity – times they are a changin’.

Will the coming months herald the Battle of the BEPS, as the OECD  Task Force breaks through enemy lines on its way to victory? Or, will they usher in the Great Phut (one day, when the OECD tries the same gambit again,  to be known as the First World Phut)? Without the Americans joining in the war, and with professionals engaging it in hand-to-hand combat, the prospects are not high that the OECD staff will be home for any Christmas soon.


Go ahead punk, make my day

The good old days

The good old days

“This tape will self-destruct in five seconds.” In the 1960s, while the mission may have been impossible, information protection was very possible. Burned, swallowed or – until a bunch of  bored  students  were looking for something to do at the US Embassy in Teheran – shredded, there was no difficulty eradicating the evidence from the face of the earth.

How times have changed. I stayed late in the office last night to complete a compulsory on-line course on “Information Protection Fundamentals” concerning  the myriad risks to information confidentiality. Once upon a time you could buzz through the fifty-odd slides  (would I do such a thing?) and home in quickly on the test at the end. No more. Now you have to listen to a computer-generated Australian woman reading the entire caboodle at the speed of someone who really wants to inflict mental anguish. And just in case you were thinking of letting the lady talk away while you carry on with seriously chargeable time – should you forget to remind her regularly of your existence, she will self-delete and send you back to “Go”.

The presentation included a loveable rogue showing how easy it is to steal information. Although I am sure I must have missed something, it appeared to me that the deliverable was that you need to take the entire contents of your office with you (including the wastepaper basket) when you go out to lunch. Passwords must never be written down but should be so complex that they are impossible to remember in order that, in the event of the employee being waterboarded by representatives of a foreign government, his lips would remain sealed (however much he might like to spill the beans).

But what caught my eye was the bit about keeping the door open for strangers.

I was brought up to always check behind me as I went through a door and, if anyone was there, hold it open until the follower was able to take my place. Back in the 1960s they called this politeness. Not any more. Before letting anyone follow you without slamming the door  in his face, you are supposed to, albeit politely, make sure the visitor has a valid office pass. If not, you are instructed to escort him to the security officer who will then wrestle him to the ground and tie his arms behind his back before discovering he is the CEO of the firm’s biggest client.

No sooner had I completed the test with the unbelievable score of 90 (please don’t wake the neiighbours with your standing ovation) than I heard somebody trying to force the door of my floor. I ignored this at first on the grounds that this is what you expect to happen in an accounting office at 9.30 at night, but eventually decided to go and investigate. As I approached, I saw a rather unsavoury type  a few years younger than me (not your run-of-the-mill Big 4 client) rattle the handle one last time before passing an employee tag over the electronic sensor, thus gaining entrance.

Armed with my fresh doctorate in Information Protection Fundamentals, I politely asked him if I could help him. He looked at me nonplussed.

“Are you an employee of the firm?” I ventured firmly but respectfully (knowing full well that, even the most  Generation Y member of staff would have learnt on his first day how to use an electronic tag).

No answer.

“Could you tell me who is hosting you this evening?”

“I am with somebody out there.” At least it spoke.

What I thought I was doing

What I thought I was doing

I continued my friendly interrogation: “Can I see the name on your electronic tag please, or, I am afraid, you will have to leave the building?”

“I want to p***, you retard”.  He stared me down in absolute fury. “I am going to p*** and you can call the police if you want.”

Why is it that courses, online or otherwise, as well as Hollywood movies are always theoretical? The undesirable either comes quietly, runs off, or shoots the inquisitor in the head. The inquisitor is never left with the moral dilemma of whether to let the suspect relieve himself.  Not having much choice in the matter, I watched him thunder off in the direction of the bathroom and decided to await his return (the risk that he would make off with the faucets under his shirt did not reach the level of ‘more likely than not’). On his way back, he did his best to break another door before remembering what the electronic tag was meant for, and proceeded along the corridor towards me screaming insults directed at myself and my late mother. I genuinely believe he was about to hit me when a Y Generation employee – and owner of the tag – turned up and grabbed his arm.  It turned out, thankfully, that he was not a client (I remember an unkempt jeans-clad bloke once wandering into my office by mistake, and my treatment of him with mild but friendly sarcasm, assuming he was a workman who had lost his bearings. It turned out he was my next meeting – an extremely wealthy player in the local market. Fortunately, he took it well). This creep was involved in some project or other that we were checking – and I was relieved (sorry) to learn that there were no plans for him to darken our portals  again.

Who needs him?

Who needs him?

Although Information Protection in our technological world is absolutely crucial, I do wonder whether the practice can ever match up to  the theory. This has been particularly on my mind since the OECD reached a long-expected decision on May 6 that there is to be automatic exchange of information between members. Financial Institutions will be required to provide the tax authorities with information on foreign investors which will then be automatically transferred to their counterparts in countries of residence. Although miscreants may think they can take comfort in the authorities’ inability to deal with mounds of information, with the rate of progress of Data Analytics – sorting the wheat from the chaff – they are probably gravely miscalculating. As for the world’s tax authorities, although there will be conditions of confidentiality, the wide circulation of such information is bound to lead to horrible leaks  on the principle that “three people can keep a secret as long as two of them are dead”.


The life and times of Prince George

British Open Champion July 21, 2013. Love the hat

British Open Champion July 21, 2013. Love the hat

The late editor of Punch, Alan Coren, informed a friend after his first golf lesson that it was ” a hideous, hideous game and, as for the bunkers, it was no wonder that Hitler died in one.” Following the communique at the end of the G20 meeting in Russia last week, it remains to be seen whether the 15 point OECD Action Plan on Base Erosion and Profit Shifting  adopted there ever makes it out of the difficult bunker from which it is being driven. My money goes on much of it landing up in the rough.

What is likely to be heading for a hole-in-one, courtesy of the G20 meeting, is  Automatic Exchange of Information – which, despite press confusion, is separate from the Action Plan. Thanks to the Americans’ successful siege of the world’s financial institutions through its FATCA legislation, the rest of the world’s big governments are going to have an easy time flattening the small ones.

Now, the immediate reaction (in other words,  what modern newspaper reporters do for a living) of most of us is that this automatic information idea is a slam dunk good thing. According to the Tax Justice Network, it seems,  there is enough undeclared income hidden in the sand to raise and launch the Lost Kingdom of Atlantis.

Difficult to argue with that. The problem is what Hollywood action movies spend most of their multi-million budgets doing- collateral damage. In chasing the crooked few, there is yet another attack on the privacy of Joe Public. Furthermore, the policy will encourage economic timidity. As regular citizens face increasingly stringent reporting requirements (inevitable when you give power to faceless bureaucrats) they will increasingly retreat to their financial bunkers, investing in domestic low risk products through their local banks who will look after their withholding tax requirements. That is an assault on capitalism at its most positive.

Although, thanks to the populist knee-jerk media, there is no chance of it happening – the international community needs to treat this issue with tender loving care.

While on the subject of Mr Public’s privacy and tender loving care, this week, of course, Britain and much of the world welcomed the safe arrival of the third in the queue for Britain’s top job (Charles has to be the epitome of the patient English “queuer”) . But it has clearly all been too much. This poor child has been hounded since before he was born and is going to be under a microscope for the rest of his life  even though he is not likely to become KIng George VII until late in the century. In an act of public mindedness I have, therefore, decided to leave young Georgie alone –  and hound his father instead.

William, you are in England, remember?

William, you are in England, remember?

What on earth did the future King William V think he was doing when he left the hospital with his wife and child? Swinging the baby-seat (with baby on board) like a picnic basket he proceeded to the driver’s side, plonked him in the back, jumped in to the driver’s seat, belted up and drove off.  The driving bit was funny. Even though he drives a helicopter in his spare time, he (and most of the royal family), when caught on camera, always look like they have just passed their test. Purposely adjusting the mirrors, woodenly lifting and letting off the hand brake, sitting bolt upright and forgetting to look round for traffic before pulling off are the actions of a novice. The driver I always aspired to emulate was my late Uncle Denny who had started driving before they had driving tests. In his sixties he would lounge in his Ford Cortina, cigarette or cigar in mouth, arm resting on the open window ledge, changing gear according to mood rather than engine revolutions, driving the car as if it was his favourite armchair with a 1600 cc engine up its backside.

What was NOT funny was the seemingly novice handling of Next-King-But-Two’s Baby Seat by Next-King-But-One. While I may claim to know a thing or two about taxation I am a positive expert on Baby Seats. With five strapping children and three gorgeous grandchildren, I have done my share of strapping in. And, however much I love them, it is not a pleasant experience – for them or me.

Firstly, wherever else modern fashion/safety standards dictate the seat should be placed (front passenger seat, middle back seat, roof etc) you do not place it through the open door on the driver’s side. While Kensington Palace may have a Carriage Drive, when William, Kate and George arrived at proud grandparents Carole and Michael’s two-up-two-down in Bucklebury, Prince William would have had to deal with passing cars and dust carts (not to mention insidiously silent milk floats).

Secondly, you cannot just plonk the thing on the back seat. As was abundantly apparent from the HD pictures, the illustration on the side of the car-seat made clear to every Englishman or immigrant (but evidently not future monarch) that it needs a seat belt. Believe me, putting a seat belt around a baby seat for the first time and finding the right lock in the middle (there are always two – because of the middle seat) is one of the most annoying experiences known to man. How often have I found myself , back aching, sweat pouring from brow, face-in-face with one of my poor grandchildren as I toil to get it right.

And then he jumped in the car and just drove off. You ALWAYS turn round to  check the kids are alright before driving off even if the mother (only one day after giving birth – poor girl) is in the back seat.

Normal people

Normal people

All I can say is that, when they got to Carole and Michael’s place, I hope Carole sorted him out – she seems a sensible sort of woman and the more time the little fellow spends there with normal people and out of the public eye the better a king he will one day be.

Having grown up with stories about stuffy royalty, I cannot help but smile when I think of Carole, a few years from now, coming down to the kitchen during school holidays and making egg on toast for two future kings. I assume protocol will not require her to curtsey twice.

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