Tax Break

John Fisher, international tax consultant

Archive for the tag “British Humour”

Two deaths and a funeral

Taken too soon

Taken too soon

Last week news of two deaths brought sadness to members of my family. My lawyer son was devastated by the premature demise of  Adrian Mole aged only 47 1/52, cut down in his prime when his greatest years of mediocrity and failure lay before him. As Mr Mole was nearly 10 years younger than me I had never had the opportunity, as I picked at the acne spots on my unseemly teenage face,  to take comfort in the confessions he committed to his candid teenage diary: his obsessive love for the unattainable Pandora Braithwaite, his dismissive opinion of his utterly abominable dysfunctional parents and so on and so forth.

My own grief was reserved for Adrian’s creator,  Sue Townsend, who died on April 10 at the untimely age of  68 1/52.  Sue Townsend was one of a handful of this generation’s genuinely great comic authors. Her forte was social and political satire and, I admit, much of what she wrote made me want to throw up – which is probably a sign of how good it was. While the Adrian Mole series of books and her most recent “The Woman Who Stayed in Bed for a Year” prey on the dysfunctionality of the  British  middle class (lower and whatever else), “The Queen and I” cuts out the middle-class entirely; the deposed Royal Family are forced to subsist on social welfare while living on a filthy working class estate. Prince Charles gets arrested, while the Queen Mother has the down-and-out neighbours over for tea.

My personal favourite Sue Townsend novel is “Number 10”, in which a thinly disguised Tony Blair dresses up as a woman and tours the country with his police guard finding out what the public really thinks. The dearth of unattractive dysfunctionals, coupled with my eternal delight at seeing that particular Prime Minister dissed,  makes it an uplifting experience from beginning to end.

You couldn't make him up

You couldn’t make him up

My most-loved quote from that novel, and from the late, lamented Ms Townsend’s pen in general,  relates to when Edward Clare’s (Tony Blair’s) wife Adele (Cherie) has taken a fashionable breast-feeding break from a meeting on the subject of Irritable Bowel Syndrome at 10 Downing Street. Baroness Holyoaks of the Liberal Democrats (those wombats who are now in coalition with Dave Cameron) is striking up a conversation with Rosemary Umbago, the blind editor of the Daily Voice:

“…’I do think it’s marvellous how you manage with your visual impairment, Rosemary.’

“Rosemary snapped, ‘Oh please call it blindness. I really can’t bear those weasel words of political correctness. I’m blind, for God’s sake. I was born blind. I’m not one of those sensitive nouveau-blind people who keep whinging on about their precious sight loss.’

“Baroness Hollyoaks, mindful of Rosemary’s dislike of politically correct language, said, ‘So, Rosemary, I understand you are married for the second time to a South African. Is he a nigger?'”

Now, while you search for excuses as to how she could get away with that last line, although Townsend was born in Leicester – which has the highest ethnic minority population in the United Kingdom –  far from being black she could probably best be described as a “whiter shade of pale”. She was, however, blind – along with being plagued with a cacophony of other dreadful illnesses and impairments as well as a history of near-poverty. It may explain why her satire is so cutting and spot-on. It also speaks volumes about a remarkable woman who brought enormous pleasure to millions. The Taxbreak family will keenly miss Ms Townsend and her creations and while this Post has nothing to do with tax, it has everything to do with this Blog .

My condolences to the multi-ethnic inhabitants of Leicester on the loss of  a favourite daughter and, meanwhile,  Happy Holidays to those of you in Leicester celebrating Passover or Easter this week. (Anyone?)

 

 

Bits in pieces

It doesn't get any easier when they get older

It doesn’t get any easier when they get older

“Look mum. No hands!” It is every parent’s nightmare to be forced to watch helplessly as their 7 year-old, with the new-found independence of two wheels, goes careering fearlessly along the uneven pavement in front of the house.  Thanks to a guardian angel, the escapade normally ends with nothing more than a toppling skid or collision with an ancient lamppost that the child’s pride leads him to insist was not there yesterday – painful but, mercifully, not tragic.

Bitcoin, the virtual currency that has taken the  world by storm, is like a bike with no handlebars being ridden by a reckless kid with a pair of cheap tyres thrown in for free.

A friend of mine, a financial adviser by trade, told me the other day that one of his clients was considering investing in some Bitcoins. I expressed genuine delight as someone could now finally explain to me in non-binary language how the Mining process works. Not so fast. His face glazed over as he offered me another whisky. Had he heard of the Mt Gox collapse or the thefts from Flexcoin and Poloniex? Yes – but everybody seemed to agree that these were local  problems, not a systematic issue. “Everybody” would appear to consist of the Lower Manhattan Chapter of 7 year-old bicycle-mounted Hells Angels.

For the uninitiated, Bitcoins had the internet equivalent of an immaculate conception about 5 years ago, appearing on the scene as an orphaned concept, the creator not known until this very day. The idea was to produce an alternative currency to those currently maddening the world that would not be dogged by regulation of Central Banks and Governments. The ostensible genius was in the way – in the absence of all that regulation – the system would regulate itself.

There go another 25 Bitcoins. Time to buy a supercomputer

There go another 25 Bitcoins. Time to buy a supercomputer

In the beginning there was the Algorithm and  a digital Bible that had fallen from the Heavens telling the first punters how to play. In the maturing market participants are required to open accounts, generally through brokers (they are even given virtual wallets to keep their Bitcoins in) and are given two codes – one private and one public. When they undertake  a transaction, they only provide the public code (surprise, surprise). Privately held increasingly powerful computers then race to calculate, by trial and error, the single solution for a block of transactions that is attached to the Block Chain (which includes the entire history of Bitcoin transactions). Every 10 minutes a single computer finds the solution, it is verified by at least 50% of computers (or computer power) extant in the system and the winner is rewarded with 25 newly mined Bitcoins. This process will continue until a predetermined maximum number of bitcoins are mined (I believe around 2030).

This all sounds very clever and infallible but, let’s face it, to err is human, to really screw things up requires a computer. Lo and behold, in the recent Mt Gox, Flexcoin and Poloniex debacles Bitcoins have been disappearing into the ether. But, being the computer dinosaur that I am (I once had to plead with a New York hotel computer help line not to ask me if the computer was plugged-in) my reasoned reservations are entirely analog.

When I studied Monetary History – if my children are to be believed, around the time people were bartering pigs for firewood – I learned what defines money (not as bloody obvious as you think, clever clogs). It must be three things: a “medium of exchange”, which can reliably be swapped for goods and services; a stable store of value, enabling users to hold it for a while  more or less maintaining its purchasing power; and it should function as a unit of account against which value in an economy can be measured. Throwing all three conditions into a basket,  Bitcoin is not looking too respectable. Leaving aside the recent insane fluctuations in value which might sort themselves out eventually, realistically until such time as citizens of the world are paid in Bitcoins and pay for their daily needs in Bitcoins, their value is always going to be measured against other currencies.

Then, even if all the conditions were somehow met ( which they will not), the Bitcoin economy will need to operate according to a very narrow, and largely discredited, “Monetarist” regime. Monetarism, adopted by Thatcher at the end of the Inflationary Roaring 70s and given lip service by Reagan a few years later, claimed control of the money supply as the critical factor in the macro economy. But the money supply had various definitions that went well beyond notes and coins. Only real whackos believed it was about keeping the supply of notes and coins constant – effectively aping the gold standard. Looking at the recent successful use of Quantitive Easing – resort to the printing presses – by the world’s central banks (most recently the ECB) to stimulate the economy it is easy to realize how futile a fixed narrow money supply would be. But that is precisely what Bitcoin is about. The only way for it to work long-term, even if it were adopted as a regular currency, would be for the system to develop an override which would have to be regulated by dreaded humans – a Bitcoin Central Bank. Back to square one.

Having got all that off my chest this is one of the rare moments when I find myself praising the IRS. They issued guidance last week on how Bitcoins should be treated for tax purposes. Instead of giving them the longed-for special status of money (not defined in the Code) they decided that Bitcoins are property. Hence, increases in value will be liable to capital gains tax (or, in some circumstances, income tax on sale of inventory). This treatment also exposes transactions to possible  Sales Tax at the State level.  The IRS approach is in line with several other countries that insist on charging VAT on transactions – a noted exception being the UK.

Real men don't speculate with Bitcoins

Real men don’t speculate with Bitcoins

With complex reporting requirements and huge dollops of VAT, it means that there is – thankfully –  little hope of Bitcoins being more than speculative assets in the foreseeable future. Of course, if circumstances change as the digital economy expands tax treatment could be altered. But a cautionary tale – we are 20 years into the Information Revolution and only now are tax authorities beginning to try to find solutions to the basic problems, while as I noted last month, they are over a hundred years behind with the central tax concept of management and control. It is a “bit” too soon to throw away your dollars.

In Memoriam

There would be no problem if one of these boys delivered our newspapers

There would be no problem if one of these boys delivered our newspapers

Venturing downstairs at the crack of dawn every weekday morning, my first conscious daily act is to open the front door and hunt for the newspaper. Invariably within a five yard radius of the letter-box, it is pot luck if it is in pristine condition on the path, lying face-down in a puddle in the self-irrigating flower-bed, or sporting a black tyre-mark right across the front page.

Everybody has their set order for reading the newspaper and I am no exception  – after a cursory glance at the front page I spread-eagle the broadsheet over the kitchen table and go straight for the bottom of Page 2 – the Obituary. It is the same thing when the Economist arrives – only this time it is the back page (the whole delicious expanse of it).

The discerning Obituary buff will know that  obituaries do not come in a one size-fits all format. One day it can be a serial murderer, the next a long-forgotten statesman and the following day a combination of the two.  With  the Great Reaper inundated over the last few weeks with politicians leaving the world stage – Adolfo Suarez, the former prime minister of Spain (one of my 1970s heroes), Anthony Wedgwood Benn, an off-the-wall  British cabinet minister (one of my 1970s bogeymen) and Ahmed Tejan Kabbah, former president of Sierra Leone (nice to know Sierra Leone had a government), I was intrigued by a piece a few days ago devoted to Randolph W Thrower who died at the tidy age of  exactly 100. Mr Thrower’s main claim to fame was that, for a brief moment in history, he was IRS Commissioner.

Thrower was clearly a decent man. As a young lawyer in Georgia in the late 1930s he defended blacks facing the death penalty on trumped up charges. In a speech on legal ethics  towards the end of his life  he stated “Every lawyer in the South was not an Atticus Finch of “To Kill a Mocking Bird”, to refer to one blemish of the past”; but he clearly was, and the point was missed by every serially plagiarizing obituary I read.

The acceptable face of taxation

The acceptable face of taxation

In his short 18 month tenure as Commissioner he was instrumental in reforms that helped the black community and the poor. However, it was his ouster that won him his place in the New York Times death column.  Reminiscent of a recent witch-hunt of political not-for-profit organizations that cost the Acting Commissioner and other senior officials their jobs, Thrower was not comfortable with the pressure coming from the White House to investigate the tax affairs of journalists and politicians. Not being armed with the benefit of hindsight and sure the President would be disturbed by the actions of his staff, he decided to request a personal  meeting. Unfortunately for Thrower and – it would later transpire – the entire American people, the President at the time was  Richard M. Nixon, himself a lawyer born the same year as the Commissioner, who would not have wasted his valuable time defending innocent blacks in the 1930s when there was far too much work to be done preparing to lynch the entire country. Thrower never got the meeting, but he did receive a personal phone call from John D Ehrlichman firing him.

Those infamous White House Tapes record that, when they were looking for a successor to Thrower, Nixon demanded “I want to be sure he is a ruthless son of a bitch, that he will do what he is told, that every income tax return I want to see I see, and that he will go after our enemies and not go after our friends.” Now that is fighting talk (in fact the sort of talk you would expect from gentlemen managed by another very recent deceased – world famous boxing promoter Mickey Duff). King Richard Nixon  playing President Richard Plantagenet (try reading the Soliloquy – “Now is the winter of our discontent etc etc” imagining Nixon as Richard III –  it works). This was Machiavelli without, as Kennedy pointed out to Ted Sorensen on the night of the 1960 election, any Class.

Evidently, Thrower’s problems with the White House started in 1970 when they sent him G Gordon Liddy as candidate to head the Bureau of Alcohol, Tobacco and Firearms. “He was a gun nut,” Mr Thrower said. “They wanted me to put a gun nut in charge of guns.” In the event Liddy later had a celebrated short-lived career planning the Watergate break-in. No shots were fired.

Rehabilitation gone nuts. Look who got centre stage

Rehabilitation gone nuts. Look who got centre stage

If I am not mistaken, whilst in the country whose yoke the Americans shook off a couple of hundred years ago taxes are technically paid to the monarch, in America they belong to the people. Mr Nixon, who was busy at the time creating the Imperial Presidency, evidently lost sight of this, as – to a lesser extent – other executive officers (but perhaps not presidents) have done since. Nixon really did represent just about everything that could go wrong with democracy and it was a remarkable act of courage, tolerance and, perhaps, folly on the part of Bill Clinton to eulogize him at his funeral.

Reading Thrower’s obituaries, another line  from that late-life speech of his seemed appropriate. It was a quote from Robert Browning:”Ah, but a man’s reach should exceed his grasp, or what’s a heaven for.”  As for Nixon, back in 1968 when he was running for the Presidency, both  he and the utterly decent Hubert Humphrey made  compulsory appearances on the zany show of the day “Rowan and Martin’s Laugh-in” which launched the careers of, among others, a bikini-clad Goldie Hawn. After much debate among his advisers he performed Judy Carne’s weekly catch-phrase. Staring into the camera Tricky Dick exclaimed: “Sock it to me!” More’s the pity one of  Mickey Duff ‘s clients didn’t hear his request.

Rest in Peace, Randolph W. Thrower, a man of integrity. The Tax World is indebted to you.

A Tale of Two Cities

I should have stayed in bed

I should have stayed in bed

Arriving at a hotel in the heart of Dickens country late last Monday night, I was asked by the receptionist if my day had been a pleasant one. I replied that, having woken in one country, worked a full day in another and being now about to go to sleep in yet another, I did not feel qualified to answer the question (or, for that matter, any question).

We live in a mad, frenetic world.

Not many hours later, beating the dawn to its daily task of rousing the city from its slumber, I decided to fulfill a life-long ambition (or more precisely an ambition since the first year of grammar school) to greet the sunrise from the centre of Westminster Bridge – mimicking  what William Wordsworth experienced when he stood in the same spot “Upon Westminster Bridge” on September 3, 1802. Well, all I can say is that either Mr Wordsworth was high on some interesting substance when he wrote “Dear God! the very houses seem asleep; And all that mighty heart is lying still!” or London has changed a bit in the last two hundred-odd years. At 6am The city was alive with motorists, cyclists, joggers, river boats and pedestrians. Even the Underground was working.

Later in the day, sitting  in the jump-seat of a Black Cab (which was not black), bombing up the Mall from Buckingham Palace to Admiralty Arch, I was alerted to the sight of a horse-drawn carriage crawling in the opposite direction and creating an almighty traffic jam in its wake. It was  being driven by two men in full 18th century livery carrying,  whom I assumed to be,  the rotund Ambassador of an African nation on his way to present his credentials (and from the way he was dressed – possibly  his bed sheets) to HMQ.

Hopefully the first and last Crimean War

Hopefully the first and last Crimean War

Later still, my colleagues and I pulled up in another Black Cab at the Cavalry and Guards Club in Piccadilly, where we were warmly welcomed by our host, a club member, who had kindly invited us to lunch. The whole marvellous experience was quintessentially British and utterly timeless. We had been advised in the invitation that “Gentlemen are required to wear a tailored jacket and tie” (my wife had queried whether, while my suit might be acceptable for an officiating undertaker it would not meet the enhanced standards of a gentlemen’s club). Taking my cue from the other diners in the room, the jacket did not come off throughout lunch despite the unseasonably hot weather and the elbows did not, even once, as much as graze the table.

My entire day was a tug-o-war between London Present and London Past. What kept coming to mind was something I had mentioned that morning in a short breakfast lecture – “Management and Control”. Over a century after the phrase was coined by a British Judge, while  it remains one of the mainstays of the international taxation system, it is also one of the most confusing.

Time for a bit of mischievous conjecture.

Tuesday July 31,  1906 – Lord Loreburn  is sitting in his usual armchair at the National Liberal Club  with a copy of the Times in his lap. He is approached by a young, balding MP, cigar in hand, who – after the usual niceties – he politely invites to take the seat  next to him.

MP: Lord Chancellor, congratulations on your judgement in the De Beers diamonds case yesterday. I understand it created quite a stir among the legal fraternity.

LL: Y’know, old boy, it was time the South Africans remembered who’s in charge. Those bounders were claiming that, just because the company was registered down in Boer Country – I know how much you love that part of the world – it was not British. Balderdash, I said in no uncertain terms. Told ’em that you had to try and imagine that a company was like an individual that cannot eat or sleep but can keep house. I thought that was quite clever. Anyway, I rounded it off with : ‘A company resides … where its real business is carried on … and the real business is carried on where the central management and control actually abides’. I  actually don’t have the faintest idea what I meant but, to cut to the chase, because all the chaps running the company are in London, it can jolly well pay its tax here as a British resident. Otherwise, the revenue will go to helping those damned Boers who don’t deserve a bean. And as for…

MP: If I could interrupt, Lord Chancellor. Don’t you think  this idea about tax residence being where the “Central Management and Control” resides could lead to all sorts of uncertainty in the future? Allow me to challenge you with something fanciful I saw in The Times the other day. You will have heard of those two American bicycle builders  – the Wrights,  I think they are called – and their early success. Well they  patented an improvement to Flying Machines a few weeks ago which they claim enables them to control flight so that they will be able to fly to specific destinations rather than their current circus act of reaching somewhere in the next field. What if one day, a company director were able to climb aboard one of those flimsy contraptions with his top hat tied firmly to his head and, holding tight to his seat, fly to another country in a day or two and make decisions there. Where would the Central Management and Control be then?

Safe travel

Safe travel

LL: Oh, you are a card! Could you really imagine a British gentleman submitting himself to one of those flying machines? Quite preposterous! Next you are going to tell me that he would be served fine whisky and a fresh copy of The Times! Ha Ha. Listen, old chap,  I was talking to Ismay of the White Star Line the other day. He is thinking of commissioning three (!) new ocean-going liners to compete with Cunard. By 1912 he expects to have the biggest passenger ship in the world sailing between Southampton and New York – with swimming pools and billiard tables – and totally unsinkable. That is the future for gentlemen. Safe, luxurious travel. Not some flimsy piece of wood with a bit of canvas stretched over it, all held together by string.

MP: You are probably right. They will be much more use for throwing bombs from when there is another war. Well, I must be on my way, Lord Chancellor. It has, as ever, been a pleasure talking to you.

MP walking across the room (to himself): Good Lord! That fellow is stuck in the 19th Century.

LL (to himself): Precocious young whippersnapper.  Lacks his father’s self-discipline. Must be the mother’s American influence. I don’t know what Campbell-Bannerman saw in him to make him Under-Secretary of State for the Colonies. Gentlemen in flying machines, indeed. And what was that idea of bowling bombs from them at the enemy?  Heaven help the country if he ever achieves a position of real power. Somehow, with ideas like that, I  don’t think we will be hearing too much more of  Mr Winston Churchill.

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