Tax Break

John Fisher, international tax consultant

Archive for the tag “BEPS”

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?

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.

Viva, Barcelona!

Words didn't come easy to him

Words didn’t come easy to him

‘In the beginning was the word’ might have been the take on things in the Gospel according to John, but by my calculation, the oldest profession has never had much use for words (other than when haggling over price), and the second oldest profession (mine) has always relied on numbers; in any event, some years ago we merged.

The first international tax conference I ever attended was in Florida around twenty years ago. It was one of the highlights of my (now) long career. Closeted for three days in a glorious hotel with some of the best tax brains I have ever met, it was an orgy of diagrammatic flip-charts, 1929 Luxembourg Holding Companies, Belgian Coordination Centres, and ridiculously aggressive globe-embracing tax structures. Numbers and boxes. Heaven.

Of course there was a price. Tax advisors were universally viewed as geeks with psychopathic tendencies who should only be allowed to meet clients if accompanied by a responsible, audit practicing adult.

What a difference twenty years can make.

I am writing this post at 35,000 feet, on the way home from the latest conference in a very wet Barcelona. Nowadays, not only are we allowed to consort with clients, we invite them to join us, unaccompanied, at our get-togethers.

And what events they have become . It was a gradual process. Out went the numbers and flip-charts. In came the sharp spot-lights on a background of blue-haze; and words,words, words. I don’t think I saw a single number over the whole two and a half days except the occasional heart- warming statistic. It seems we have joined polite society.

Unfortunately, he couldn't make it this year

Unfortunately, he couldn’t make it this year

Our gurus talked in sound-bytes worthy of a British news anchor, about the rise of ‘compliance’. Compliance! When did the Detroit of the international tax world become sexy? Any color as long as it’s black! Boring! Not anymore. We listened to the Tax Emperor of one of the world’s very largest companies explain that his compensation algorithm no longer includes the effective tax rate, but instead is weighted towards his level of success in meeting all the group’s international reporting requirements. To put it more succinctly – promiscuity is a thing of the past. Today is all about Safe Tax.

An issue that had a lot of traction was BEPS (Base Erosion and Profit Shifting), about which I wrote a few weeks ago. The latest OECD update had been fortuitously issued a few days previously and this was a chance for sound-byting about the 15 constituent topics. After a panel of talking heads had compromised their integrity to impress the super-intelligent moderator (who is also a genuine ITV News Anchor),  it was left, implausibly, to the Chinese participant to remind everyone that BEPS was not going anywhere without the Americans. And the Americans are not going anywhere. Period. Good night, and good luck.

There was a spellbinding lecture on the mushrooming effect of Big (stored digital) Data on our lives, delivered by a remarkably competent stand-up comedian who triples up as a successful author and university professor. He, too – in what was starting to look like a conspiracy – incredibly avoided numbers, other than those that were so big the conference participants were unable to comprehend them ( a place in their heads previously occupied by lawyers’ fees).

Overall, it was a very successful few days – another strip of asphalt in the long road to acceptance by Society.

Happy New Year to anyone celebrating this week

Happy New Year to anyone celebrating this week

When I get home, I shall put my best suit back in mothballs and hang up my silk ties. Like Cinderella after the ball, it will be back to the daily drudge. No spotlights. No blue-haze. No News At Ten anchor. But lots and lots of numbers. Yippee.






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.


The Tax Business

This week's edition has come back to Earth.

This week’s edition has come back to Earth.

If proof were needed that the Silly Season is upon us, it turned up in our mail box a few days ago. Slowly ripping open the envelope housing last week’s Economist, I noticed an ‘x’ peeping out at me from the partially-revealed cover. Excited by the prospect of ‘tax’ finally having  hit the headlines of  the world’s most venerable newspaper, I rapidly finished the job, the publication  falling unceremoniously onto the kitchen table.

Well, it seems that tax doesn’t sell newspapers at airport newsstands in midsummer. The normally sober Economist had gone for the lowest common denominator, running a feature: ‘The Sex Business’. Having seen the article, all I can say is that there will have been a lot of disappointed vacationing punters out there who would not have been able  to get their money back because, by the time they realized their mistake, they were half way round the world.

If the Economist can be silly in August, so can I.

Something that has been bothering me for ages is the complete lack of respect for the English language in certain  tax publications. My firm subscribes to a number of leading journals. Most are pure hardcore professional jobs that pay no attention to format, but provide their product in a raw and timely manner.  However, there is at least one (which I will not mention by name for fear of reprisal), from a highly respected stable, that presents itself as a glossy, ‘hip’ magazine. Sixty pages, lots of colour pictures, a ‘funny’ (spare me, please) back page, plenty of adverts and a $200+ cover price (in fairness, internet access is thrown in). The articles, generally written by tax professionals who I assume are not paid, are often highly informative, justifying the subscription. But, what I cannot abide, is the wanton lack of editing which, frankly, is more-or-less all that is left for the editors and publishers to do.

Here is a recent example:

As those involved in the OECD’s base erosion and profit shifting (BEPS) project reach for the halftime oranges and energy drinks, our special BEPS feature looks at the progress made to date and explores the hurdles that litter the track ahead as the bell rings to signify the last lap in this race against an ambitious timeframe to produce meaningful outcomes.

If you pay peanuts....

If you pay peanuts….

Oh dear! This would have got me a miserable fail  – and a whack round the head –  in primary school. Apart from the lack of punctuation (one comma in an unforgiveably long sentence), the  metaphor is horribly jumbled; although no great athlete, I do not recall half-time in races – even marathons. I could go on and on, but I will not try your patience.

The saddest thing about this ‘sentence’ , apart from the enormous angst it must have caused the myriad readers for whom English is not their mother tongue, is that it was part of the introduction (the rest was no better) to a full-blown feature section. With no appetite to proceed, I dipped into the first article, which included in the first sentence the expression “most well-known’. Unless he had been paid by the word (and well-known counted as two), the average mortal would have gone for the better recognized:  ‘best known’. At that point, I realized: ‘Houston, we have a problem’, and made a mental note to take 2 aspirin half an hour before attempting to read on.

She even edits the text on her tee-shirts

She even edits the text on her tee-shirts

It is high-time they took some of their income from the advertising and $200+ cover price to employ a good copy editor.  If currently between books, E.L. James or Danielle Steele would  do a wonderful job with the syntax and punctuation, at the same time coming up with unthought-of teasers for a three-letter word ending in ‘x’ (in case you were wondering, I was referring to ‘tax’).

And before you start gratuitously red-marking this post – rest assured that, when you start paying me $200 a shot for this Blog, I will employ a copy writer.

Happy Silly Season.






Whole in one

"YOU are teaching ME the Old Testament?"

“YOU are teaching ME the Old Testament?”

“I said: ‘Remember Lot’s wife. Never look back.’ I don’t know whether Henry had read the Old Testament or not, but I had, and he got the point.”

Thus spake that most Nietzschean of US Presidents, Richard Milhous Nixon, to Sir David Frost  back in 1977, mocking his former Secretary of State’s qualms about invading Cambodia. Knowing, as we now do,  Mr Nixon’s eloquent way with words, we can make an educated guess that what he actually said was: ‘Remember Lot’s ******* wife’. However, Mr President, we too got the point.

No fire and brimstone raining down on this house

No fire and brimstone raining down on this house

But for Nixon’s conceit, he might have realized that, born into an Orthodox Jewish family, Henry {Kissinger} would have learned the story of  the Pillar of Salt in the Hebrew original  long before studying   “Fun with Dick and Jane” or its German equivalent (and Dick and Jane did not have nearly as much fun as they had in Sodom and Gomorrah).  Posterity does not record whether Kissinger retorted by congratulating his boss on his command of the early chapters of Genesis while asking whether the paranoid President had ever made it as far as the story of King Saul.

Had Nixon’s line come up at the impeachment of President Andrew Johnson a century earlier, it would have been reasonable to  assume that everyone hearing it would have immediately understood its context without the need for mentioning not to look back.  A third of a century on from the  interview and Generations X and Y would now most likely miss the point entirely until saved by that artificial memory facility, Wikipedia.

An increasingly secular world has substantially lost its Biblical “lingua franca” and, even allowing for a huge dollop of atheism, as we celebrate the 450th anniversary of the birth of  the Bard an increasingly prosaic secular world has lost its Shakespearian “lingua franca” too.

Who has time to read the Bible?

Who has time to read the Bible?

Which brings me to the single question that frames Generations X and Ys’  deeper thinking: “Who cares?” or, to be more precise, “Who gives a ****?’ (and that is as precise as I am going to be). Well, boys, girls and those of you Xs and Ys who have yet to decide what you are, apart from the ability to communicate in something more elegant than two syllable grunts, such universally shared texts allow  sometimes complex thought processes to be shared in a flash.

Reading the OECD’s relatively tame  “Public Discussion Draft: BEPS Action 1 : Address the Challenges of the Digital Economy” published a few weeks ago, it occurred to me how important this lingua franca thing is and how, until now, I may have been barking up the wrong tree in advocating a complete recalibration of the international tax system.

As readers know, the OECD in conjunction with the G20 (or G19 as Russia is currently standing outside the Headmaster’s office) is pursuing an ambitious goal of straightening out everything that is crooked on the international tax scene. One of the biggest challenges is dealing  with the Digital Economy because, in the succinct words of  the milkman philosopher Tevya in Fiddler on the Roof: ‘It’s a new world, Golda’. In my heart of hearts I continue to believe that there needs to be a fundamental change in the basis of taxation including abolition of company tax. However, the Draft, which impressively analyzes the components of the digital economy, while opening the door to substantial changes on such issues as the definition of a permanent establishment, reduces the issues for treatment to the well-worn existing norms of international taxation.  That, after all, may be no bad thing.

Nobel Laureate Daniel Kahneman in his book “Thinking, fast and slow’  talks about “expert intuition” – a Fire Chief who senses exactly when to leave a burning house before it collapses or a Chess Master who can instinctively advise the next three moves in somebody else’s game. It turns out that this comes from enormous practice and experience  and not some magical eureka moment- a combination of System 1 (automatic) and  System 2 (conscious) thinking. This allows for quick, highly complex, thoughts.

When an experienced tax advisor is asked to analyze a situation of, say permanent establishment status, he or she will often intuitively know the answer immediately and then spend the next 25 hours (at premium charge-out rates) proving it right. The terminology is then used as  a lingua franca between members of the tax advisory team who can concentrate on producing a holistic answer based on the initial “findings”.  If the system were to be fundamentally changed we would, at least in the short to medium term, lose that hard-wired expertise and be forced into fully conscious thought processing taking one step at a time.  Apart from the additional hours required to deal with new situations (Yippidoo!), there would be significantly increased risk of  not catching the full picture. Insurance claims would increase (along with the number of disclaimer lines on memos and opinions).

And if you think the above is a load of nonsense, an experiment I and my colleagues were once subjected to (spoiler alert: If you like making a fool of yourself in public, do not read on) involved watching a video of a white-clad team and a black-clad team passing basketballs. We were told to count the number of passes made by the white team.  Concentrating so hard on the number of passes, we all failed to notice the pantomime gorilla walk across the middle of the screen, stop, beat its chest, and carry on.  In tax advisors’ parlance that gorilla could have been VAT, disallowable interest or a host of other tax planning side dishes that today would serve themselves up as expert intuition.

I still believe that one day the system will need to fundamentally change, but – just as  St Augustine (with whom President Nixon was doubtless better acquainted than was Kissinger) beseeched his Creator: ” Give me chastity and continence, but not yet” – I would rather wait a while (preferably, until I  retire).

nietzsche-is-deadIn the meantime, while reading of the Bible may be at an all-time low, new-release Hollywood blockbusters like “Noah”, “Son of God” and “God’s Not Dead” may get the lingua franca going again. Mind you, judging by the wholesale reworking of the Noah story, I hate to think what they would do with Sodom and Gomorrah.


A supertramp is born

A supertramp is born

Eureka! A mere week shy of a century since Charlie Chaplin first stumbled onto the Silver Screen, the world’s Tax Supremos  finally discovered the wonders of  Moving Pictures. Watching the  OECD Centre for Tax Policy and Administration’s first webcast on Base Erosion and Profit Shifting  (BEPS) on January 23rd, there were times when I wished the new media stars had gone through the normal evolutionary process of testing the primordial soup with a Silent Movie.

This was gut-gripping stuff, dealing with progress on the now famous BEPS 15 point Action Plan endorsed last year by the G20 group of nations. It is an attempt to hammer the growing tendency to double non-taxation in international corporate tax planning which,until recently, starred the very silent Google, Amazon, Starbucks and Apple with various other companies in supporting roles. The CTPA was charged with an incredibly ambitious timetable to change whatever is in the hands of the OECD to change (Model Tax Conventions, Guidelines,  new Multilateral Instrument) and provide recommendations for whatever is not. If all goes to plan – and the webcast kept its audience glued to their iPads with optimism on this – the operatives of the CTPA will all be home in their beds in time for Christmas 2015. The boys in the trenches have heard that one before.

Tax people never used to look like this

Tax people never used to look like this

The broadcast had an international flavour. It was chaired by an American Carl Reiner lookalike with depressive touches of Woody Allen. His performance indicated that he was clearly aiming at an audition as AT&T’s next Speaking Clock. The four person panel sat in a row bolt upright reminiscent of a 1950’s election broadcast where the suspicious politician always looked scared he (it was almost invariably a he in those days) was going to be shot between the eyes by the strange thing pointing at him called the TV camera. The star of the show was the photogenic Director of the CTPA, Pascal Saint-Amans, sporting a Yasser Arafat five-day growth, chic suit and “I am going to seduce you with my French charm” thick-framed glasses. He was joined by the perfectly coiffed Raffaele Russo, head of the BEPS project, who was either talking to the wrong camera or thought he was lecturing to the sound-man standing a few feet to the right of the cameraman. Marlie de Ruiter, Head of Treaties Transfer Prices and Heaven knows what else,  added gender diversity to the proceedings and would have made a perfect partner for Saint-Amans in  ‘Strictly Come Dancing’.  Completing the line-up was Achim Pross, Head of the International Cooperation and Tax Administration Division, a middle-aged  natural bald who reminded us all that, at the end of the day, this was boring tax. The speakers had clearly been trained at the Katherine Hepburn school of drama; as Dorothy Parker said of her: “She ran the whole gamut of emotions from A to B”. Before recording ‘BEPS – The Sequel’, they should watch a few Egyptian Soap Operas where nothing moves EXCEPT the faces.

Nice place for BEPS & Breakfast

Nice place for BEPS & Breakfast

This was, of course, bureaucracy par excellence. We heard about task forces, programmes, global fora (no fauna), public consultations, white papers, questionnaires, discussion drafts and – could international organizations live without them – meetings in exotic places. There were acronyms (not finding HTP in the Action Plan’s glossary, I googled it to discover that the only reference was the document I was trying to decipher – go figure), diagnoses, deadlines, reporting templates and working parties. What there was not, was any talk about anything concrete actually happening (no worries, the first deadline is eons away in September this year).  As to  bringing on board any countries other than the 34 rich-world members of the OECD and stray members of the G20 – the only mention was of Latvia and Colombia which, I assume I have understood incorrectly, now represent that hard-to-put-your-finger-on-it “Rest of the World”.

A promising star in the firmament could be Australia’s Tony Abbott – this year’s chairman of the G20. Refreshingly the Aussies have no time for European sophistry  (they would probably use another word) and Abbott has already said he doesn’t want a talkfest (that was not the word I had in mind and, what is more, it doesn’t actually exist). If he can get Obama on board – and with all the Action Plans and Acronyms it is still the Americans that set rules as has been obvious with FATCA – there could be interesting developments in 2014. Otherwise, that first tax broadcast being almost exactly a hundred years on from Chaplin’s debut may prove more than a coincidence. Chaplin’s film was “Making a Living” in which he played a swindler pursued by the incompetent Keystone Cops.

Dallas, Taxus

"The Kennedys"

“The Kennedys”

According to a study in the influential “British Medical Journal”, if you are looking for a safe profession (leaving aside Accountant or Lawyer), you would be better advised to plump for Bomb Disposal Expert or Formula 1 Racing Driver than Soap Opera Star. The BMJ informs us that characters in these B-TV sagas have three times the normal mortality rate across age groups. Taken together with the other essential ingredients of a Soap – halting scripts, multiple rambling semi-plausible plots, and the occasional totally implausible shock occurrence (remember when the entire 9th series of Dallas turned out to be a dream?) – “The Kennedys” could have easily qualified for a grant from the Soap Opera Arts Council.

With newsprint and screens currently full of the  tragic moment in Dallas  exactly 50 years ago next Friday, my unhinged thoughts drifted unwittingly to other Reality Soaps and, particularly, those of the Taxploitation Genre.

The ink is not yet dry on the OECD Base Erosion and Profit Shifting Action Plan and hurriedly drafted scripts, including those of various tax authorities, are already prophesying the impossibility of reforming the taxation of the digital economy, which is so essential. Flashbacks remind us that the whole international tax mess started after the First World War, when  the Gentlemen’s Club of Europe and America decided that taxation should follow residence – so that profits did not remain in the hands of the off-screen Colonial extras who had their hands on  the raw materials , but flowed up to the stars at centre-stage.

The public and their governments now scream that , with the onset of internet maturity,  it is time to upset the digital world order – a rare Soap moment calling for  Tax Armageddon. Surely the time has come to look more closely at where transactions are being consummated –  recognizing that data-collection should be taxable where the data is collected?  But no, it is noted that there is absolute connectivity between the digital and old  economies – if we change digital, we have to change everything – and that exclusive Gentlemen’s Club seems to be saying: “That will not do. We cannot flash the bat outside the left stump”. They prefer to carry on with the same script tweaking it over the long-term trying to achieve governments’ stated goals.

Marilyn is far left, Carlos is far right (he was, after all, from Franco's Spain)

Marilyn is far left, Carlos is far right (he was, after all, from Franco’s Spain)

This brought back memories of my favourite soap during my formative years – the low-budget, cardboard-walled “Crossroads” about a Midlands Motel, which ran without interruption from 1964 to 1988. In its early years it followed all the normal rules until, in 1968, sometime around the assassination of RFK, the scriptwriter must have had enough of writing his daily drivel. In an act of devilish inspiration, and right under the noses of the sleeping producers, he decided to marry-off the extremely “working-class” Motel waitress, Marilyn Gates, to the local vicar, Peter Hope. I can picture the scriptwriter the night before the announcement  (episodes were filmed in a single take) on a bender in his cheap hotel (motel?) room, poring over the ubiquitous Gideons’ Bible hoping for an epiphany,  hitting on the enigmatic Mary Magdalene, and the deed was done.

When the producers woke up and realized that, while evolution is the thing with Soap Scripts, this one was going to end in tears, they probably did contemplate contributing to the statistics on which that BMJ article was based. However, they had a problem. Only a few weeks previously they had killed off Carlos, the beloved Spanish Chef who died saving children from a burning Orphanage. Another cardinal rule of Soaps is – you can’t kill people off too often; (they may have killed off the scriptwriter, but he would not have been missed unless he was planning the first Miss Crossroads competition for the Christmas special.) The solution was, literally, unbelievable. With the raising of a middle-digit to their intellectually superior viewers (including 10-year-old me),  one bright evening a few months after the wedding the episode opened with an announcement: “From today, there is a new Marilyn Hope” and, in keeping with the miracles promised by her Faith,  the said Marilyn Hope appeared as a prissy, blue-stockinged, Queen’s English-speaking, Vicar’s wife…….and they all lived happily ever after (or, at least, until they were buried by budgetary cuts in 1988).

And that is what the scriptwriters of the tax world might be trying to do to their governments and  us. Cornered in a dead-end without a feasible storyline, instead of bumping off the entire cast, they may just try and dress digital taxation up in a different pair of stockings (a bit of consumer jurisdiction VAT here, a service Permanent Establishment there).

john_f__kennedyOne cold Tuesday afternoon a few years back, I stood shivering on the Grassy Knoll. It was one of the most unremarkable places I have ever made a special point of visiting. Apart from the anonymously named “Sixth Floor Museum” behind me, the only indication of what happened that terrible Friday were two metal studs in the approach road marking where the bullets hit. Whatever Kennedy was, or wasn’t, he inspired new frontiers. The Tax World could do with another JFK right now. Obama’s policy wonks and speechwriters should get to work on their laptops.

Brave New World?

Does this guy really think all day about base erosion and profit shifting?

Does this guy really think all day about base erosion and profit shifting?

When, at 3 o’clock on the morning of September 30 , I flopped, bleary-eyed, into a chair  in a Berlin hotel room, activated my laptop and started to write about John Le Carre’s Cold War Trilogy, it did not occur to me that the ensuing post was to be the beginning of my (first) trilogy.

The story so far: A frightening woman chairing a British Parliamentary Committee in November 2012 breathes fire on representatives of Starbucks, Google and Amazon for planning their UK tax bills out of existence. She accuses them of immorality which, since cross-dressing and other fun activities are rumoured to be a staple of Westminster life, is a bit ironic.

Not as cool as the  OECD

Not as cool as the OECD

In June, the G8 leaders, bored out of their minds in some windswept corner of Northern Ireland, decide to call International Rescue but, instead of Scott and Virgil Tracy touching down on the adjoining golf course, they get Pascal Saint-Amans (pictured above), the sexy no-strings-attached   French Head of Tax Policy at the OECD (he replaced a not-very-sexy Welshman last year).

By the time of the G20 summit in St Petersburg in July there is a 15 point  OECD Action Plan in place, comprehensive enough to thwart the amoral designs of the most perverted of tax planners. What is more, just in case somebody manages to make it out of the killing fields alive, there is a rushed new draft on the transfer pricing treatment of intangibles as well as a plan for the automatic exchange of information, finally agreed to by the People’s Republic of China (that great champion of the right to privacy) on the eve of the subsequent September G20 summit. Meanwhile, the mob screams for the blood of multinationals and their advisors, most of whom do not look like heart-throb Saint-Amans. These days, life is good if you are a tax advisor with a death wish.

The big question is: What is going to happen next? This is a good question. Twenty years ago I would probably have ventured a straight answer; nowadays I am more reticent, which I suppose, by inference, means I am more stupid.

This was the moment to sell Imperial Bonds short. The markets failed to predict WW1

This was the moment to sell Imperial Bonds short. The markets failed to predict WW1

Some time ago a Dutch colleague sent me a copy of a fascinating book by Nassim Nicholas Taleb – The Black Swan. The basic premise of the book is that there are totally unpredictable events that have a massive impact on society and which are subsequently rationalised by that same society (why didn’t the useless US security services predict 9/11?). As a result predictions are nauseatingly inaccurate and using a broker for your investments is strikingly similar to paying the lady in the halter-neck evening dress sitting next to you to place all your chips on 21Rouge.

Predicting the future of the international tax world, therefore, comes with the disclaimer that none of what I am going to say will apply if: Rand Paul (son of Ron Paul, the serial presidential candidate who wants to turn the Fed and IRS buildings into luxury condos) is elected President in 2016; aliens build an intergalactic superhighway through the bit of Space currently occupied by Earth; the People’s Republic of China becomes the No.1 economic superpower and insists on corporate and individual privacy in line with Chairman Mao’s Little Red Book (totally upended edition); or the Messiah comes (it will only then be empirically clear whether for the first or second time).

The plans, if successfully implemented in their entirety, will lead to a fundamental realignment of the international tax area. The BEPS Action Plan, by targeting digital businesses, hybrid instruments, interest deductibility and transfer pricing at the same time as ensuring that tax planning, warts and all, is on public display at the local Tesco’s, will put paid to the magical sleight-of-hand international tax planning that attracted us all into this rural corner of the profession in the first place. The Revised Discussion Draft on Transfer Pricing Aspects of Intangibles will, by insisting on examining where value is created, substantially exclude all but serious MNE’s from shifting profits to lower taxed jurisdictions – such planning requiring the transfer of physical, living people who are actually going to carry out the functions to which they are assigned (shock, horror), as well as volume tax savings where the delta in tax rates may not be that great.

International Tax Advisors will continue to flourish – but in a much less exciting fashion. They will concentrate on tax efficiency rather than tax elimination – to the extent companies can move people, assets and risk between jurisdictions there may be genuine tax savings or deferral but, otherwise, planning will concentrate on not paying excess or double tax through inefficient structures. There will always be a need for companies to understand their tax positions in new foreign jurisdictions and all the signs are that compliance issues will continue to increase geometrically. In addition, there will always be Transfer Pricing (although, despite current protestations to the contrary, simple formulary apportionment will be used in all less material transactions).

Impossible goal? It went in

Impossible goal? It went in

The question that remains is how likely it is that the plans will be implemented in their entirety. The OECD and G20 have set ambitious deadlines for just about everything being complete by the end of 2015. While a lot of the issues have, in practice, been under consideration for some years, most of the deadlines appear ridiculous. Grown-up nations like Britain and France, while  publicly sponsoring and supporting the reforms, themselves offer tax incentives that will need to go; not all developing countries are on board; and, most significantly, unless they can substantially convince every sovereign country to agree to a Multinational Instrument that would change international tax relations without the need for the renegotiation of bilateral tax treaties, the whole thing could take decades. On the other hand, it is unlikely that public awareness of the issue will now evaporate and that governments will take it off the agenda. To get this to work some time in the next decade it needs thought (the OECD), goodwill (the G20) and brute force (the United States).

At the end of the day, as in so many difficult situations, it will be up to Uncle Sam to speak softly and carry a big stick. My money is on that. Croupier, spin the wheel.

Obama, Join The Circus!

English hero

English hero

I read everything that John Le Carre ever wrote until he, like Paul Simon, went African. His Cold War novels had me chained to the page.  Who could forget the very end of the Quest for Karla Trilogy as Smiley’s People, the last in the series, draws to a close? Spoiler Alert – you may be about to kiss farewell for all eternity to the chance to savour not one, but three truly amazing books. Karla, the Soviet superspy defects across a Berlin foot-bridge  and, as he passes his nemesis George Smiley,  drops the gold lighter that had been a gift to Smiley from his estranged wife.

I had that scene on my mind as I flew in yesterday to Schonefeld Airport in the former East Berlin. The last time I was in Berlin, in the middle of the last decade, Schonefeld was a really ugly Soviet- era airport, with the exclusive El Al terminal guarded by a friendly working tank, its gun trained a little too keenly on the airport approach road. Today it is a really ugly Merkel-era airport without the tank but with Aeroflot planes parked next to their Israeli counterparts – the times they are a-changin’.

I had spent the flight reading the OECD’s latest “Revised Discussion Draft on Transfer Pricing Aspects of Intangibles” with an umpteenth review of the “Action Plan on Base Erosion and Profit Shifting” for dessert. And what could turn a man’s thoughts to espionage more effectively than that?

For those of you who did not lay siege to the OECD Headquarters at the end of July salivating over a copy  of Working Party No 6’s said Revised Discussion Draft,  let me put your minds at rest – you didn’t miss much. It is, to be fair, a highly competent document that deals quite courageously with  identifying intangibles and the surrounding transfer pricing issues – looking very closely at value creation in the functional analysis, establishing that effort trumps legal ownership so that you really cannot ignore “people” when planning your tax. A healthily suspect view of the allocation of risk between group companies is also clear to the naked eye and then there is that long list of examples that aims (but fails) to clarify the meaning of the document.

The less exciting  BEPS

The less exciting BEPS

The Revised Discussion Draft also segues admirably into the “BEPS” – the unfortunate acronym for the Action Plan on Base Erosion and Profit Shifting as opposed to a new tablet for dyspepsia – where International Tax and Transfer Pricing are given the Billy Graham/Pat Robertson  treatment on the moral responsibility of soulless companies to pay lots of tax even if they are not legally required to do so.

Aye, and there’s the rub. The future of the, undoubtedly dysfunctional, international tax system rests on a Kamakaze academic study (circles the target brilliantly but doesn’t tell you how to land) and a poor Bible Belt impersonation from a group of world leaders who are not even capable of saying “Boo!” to Syrian government atrocities.

Perhaps they should have recruited George Smiley. Le Carre fans will recall that Smiley was an unlikely hero. Looking the spitting image of kindly old Alec Guinness (even Le Carre seems to have thought so), he quietly paced the corridors of the Circus (sort-of-Langley to you Americans out there), frequently displaying the moral highground in his own inimitable way as he devised and practiced his craft.

But when it came to Karla – his Public Enemy No 1 –  George went for the oldest and dirtiest trick in the book. He had him blackmailed. That brought him over to the West with his stash of secrets. Smiley didn’t celebrate – it was all too complicated (including that gold lighter) and not cricket – but the job was done.

Now, in case there is any confusion, I am not suggesting a J Edgar Hoover style campaign against MNE CEOs across the Globe nor, for that matter, a J Edgar Hoover style campaign against international tax advisors across the Globe, the latter being far too close to home (however far across the Globe) for my personal comfort.

What IS needed is for a handful of the world’s leading nations (a euphemism for the United States) to quietly steamroller a New World Order using the strong-arm tactics at their disposal – as they did on FATCA. The result will be far from perfect, but it will be a result and inevitably far better than the current proposals most of which will be mired in years of debate and disagreement.

American hero

American hero

I read once that, after the fall of the Berlin Wall, Markus Wolf, the head of the East German Stasi, was asked what he thought of Le Carre’s books, (contrary to widespread rumour, Le Carre has repeatedly denied that he was the model for Karla) . He is reported to have said that he wanted to meet the author in order to put him right on a number of things.  Few would argue that, even if Tinker Tailor Soldier Spy, The Honourable Schoolboy and Smiley’s People were not 100% accurate (who knows?) the world would not have been a poorer place without them.  Obama needs to be persuaded for once not to go for the Excellent (which, in foreign policy terms, he invariably misses by a mile) but just for the plain, imperfect Good. He needs to act. Who knows, he might even get it right?

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