Tax Break

John Fisher, international tax consultant

Archive for the tag “EU”

Red Scotch Tape

And then came the 1970s

When Queen Victoria opened the Great Exhibition in 1851, Britain was the world’s leading industrial power, producing more than half its iron, coal and cotton cloth.

 Well, I don’t think Her Late Majesty would be very amused to hear from her great-great granddaughter how the country she bequeathed to her descendants in perpetuity is currently faring in that field (mind you, her grandson Kaiser Bill did a far bigger hatchet job on Germany).

Nothing highlights the shifting sands more starkly than the announcement the other day that, following World Trade Organization approval, the US is to apply ‘the biggest ever’ new tariffs to imports from the EU – and specifically the UK, France, Germany and Spain.

The British air industry knew when to be competitive

The issue has been brewing for 15 years, ever since the US first complained to the WTO that the EU was subsidizing Airbus and others to assist in their competition with Boeing and others. The EU was indeed found to have overshot the General Agreement on Tariffs and Trade and given until late 2011 to comply. The EU did take measures, but in 2012 the US requested the review of a compliance panel, and in 2018 the WTO determined there had been further violations. The WTO finally ruled last week in the US’s favor and the US Trade Representative was quick to issue a list of products to have their wings clipped through new import tariffs.

The list of products to be punished, represented by their Harmonized Tariff Schedule Codes, is long. The first item is, unsurprisingly, aircraft – the prices of which are to be hiked by 10% from later this month.

It is the next item – designed to hit Britain – that is gobsmackingly strange. You would have thought that it would be heavy turbines, trains or ships. No. It is single malt (and only single malt) scotch whisky – together with single malt Irish whiskey distilled in Northern Ireland, if there is such a thing. And no friendly 10% for them. 25% slapped drunkenly on the price.

It turns out that the most effective way to get at what was once ‘the workshop of the world’ is through premium brand whisky. But, it is all so unfair. Check on Wikipedia for ‘Aircraft Manufacturers of Scotland’, and you will be greeted by ‘Defunct Aircraft Manufacturers of Scotland’. In fact, tragically, Scotland’s biggest claim ever to aviation fame was probably the 1988 Lockerbie Disaster, for which they suffered more than enough.

So, sadly, the good people of Scotland (in the interests of full disclosure, I should point out that I am half Scot) are being made to pay for the shenanigans of their southern partners (who themselves are probably far less guilty than the Germans and French , both of whose record on air wars is abysmal).

Who are the Americans trying to kid?

I don’t know what hurts more – Britain’s descent from the industrial world to the spirit world, or the gross unfairness of trade wars. Not much can be done about the former, but the latter should be exorcised before the new mercantilism takes an unbreakable hold.

We are not amused.

Trying to keep the relationship platonic

Following the recent news of Greece’s continuing woes, and thinking about what to write, I soon realized that very little has changed since I penned the two Posts below in 2012. The country’s new whacko Government has won a reprieve from a fatal dose of international hemlock by promising to come up with alternative measures to meet the ‘Troika’ demands for a formal extension of its bail-out package. It looks like the great deficit-plug is to come from the ruthless prosecution of tax evaders (ha, ha). Indeed, a former finance minister went on trial yesterday for allegedly removing relatives’ names from a list of unreported offshore bank accounts (see Post from 2012 below – and ponder the relative amount of time it took to get him and the whistleblower to court). Furthermore, another former finance minister received a four year sentence last November for undereporting his income, although ‘four years’ subsequently turned into a €14,500 fine (the annual price of freedom in Greece, it turns out, is €3,625. Cheap at half the price). In short, Greece continues to be a hopeless case. The only question is whether foreign creditors are actively engaged in allowing the wool to be pulled over their eyes. Read on (I apologize in advance that you may be seeing this again in 2018):

Olympic spirit lost

My trip to New York cancelled last week courtesy of Superstorm Sandy, I decided to take advantage of the hour before anyone realized my calendar was empty to clear my desk. Forgetting the utterly ignored disposable cup of coffee nestling under a sheet of foolscap, I watched in helpless horror as it tipped drunkenly on its side and lazily cast forth its contents over my diary and neighbouring assorted papers. My barely legible handwriting disappeared as the ink, dissolving into the coffee, was dispersed across the open page. Taking a leaf out of the book of the intrepid New Yorkers, by midday I had a spanking new diary and only the merest hint of brown on numerous documents newly piled at the edge of the desk.

The experience took me back 40 years to the summer of 1972 when we were just finishing 8th Grade (in England it was called the 3rd Form which was a bit confusing since we had already had one of those several years earlier). Our Form Master was Severus Snape minus the charm with whom one messed at one’s peril. Of course, as healthily idiotic teenage grunts we messed at our peril – but we all knew our limits. All of us, that is, excluding one. There is one in every class. A totally incorrigible youth with no academic aspirations who is programmed to kick back at all cost against authority. Civilly disobedient – Mahatma Gandhi without a cause. Anarchic without knowing the meaning of the word. Angry young man who wasn’t even angry. If we were told to write the address on our report envelopes in the centre, he wrote it in the top left-hand corner. If we were told to sit down, he stood up. Told to write in pencil, he wrote in ink. You get the picture.

In those days part of the daily ritual was the redundant task of calling the register to corroborate the evident fact that, while so-and-so’s desk was clearly empty, he (we were all He’s) was not hiding somewhere else in the room. Each morning the dreaded Commandant would labour through the 31 names and mark squares on that term’s page with an alternating diagonal pencil-mark producing, over time, a herring-bone effect that was quite aesthetic. Trusting in his absolute power over us, the register was left in his unlocked desk – a Holy Ark that we assumed, if touched, meant instant death.

Then came that fateful morning when our revered leader marched to his desk, removed the register, opened it, fell totally silent, shook with rage and then sat down with his head buried in his hands. Carnage. Somebody (guess who) had poured an entire bottle of Parker Quink over the sacred tome. I don’t remember precisely what happened next but, despite the temptation to embellish the story, I am pretty sure there was no blood and there was definitely no ambulance.

Why am I writing all this? Because the European Union appears these days increasingly like a class of juveniles. And no prizes for guessing the incorrigible country. They were at it again last week.

Last Sunday, the editor of an investigative magazine published a list of over 2000 names of account holders in the Geneva branch of HSBC bank and was promptly arrested for breaching privacy laws. What is more, in a show of absolute legal efficiency, he was brought to trial on Thursday and, equally promptly, acquitted of the charges against him.

This all sounds quite impressive, if a waste of taxpayers money, other than for one thing – all the actors in this little play were Greek. The list, transferred to the Greek Government two years ago by the then French Finance Minister and now Head of the IMF, ostensibly pointed to wealthy Greeks who may be running a sideline in tax evasion. Somebody (the hot potato is now passing between former government ministers) stuck it in a drawer and “forgot” about it. Meanwhile, as I noted on this blog back in February there are (or, at least, were) over 165,000 (one hundred and sixty-five thousand) cases awaiting trial in the Greek court system. But they still managed to get this guy up in front of the Beak within 4 days.

I am not a lawyer and I do not know how heinous it is to breach someone’s privacy when it is in the public interest (if I am not mistaken Woodward and Bernstein did something similar 40 years ago that rather inconveniently brought down the President of the United States – and nobody tried to put them in the Electric Chair). However, even I know that there is something absolutely heinous with the government of a country that is struggling on the ropes with its budget deficit, not pursuing tax evaders. The fact that this case was taken to trial so fast is not heinous – it is just a sign of how morally bankrupt and obviously beyond the pale Greece is. I had goose pimples when the current Greek Front Man, Antonis Samaras was praised by Angela Merkel in Berlin. I know that a Greek exit from the Euro would not be simple for the creditor nations and that fact is heavily influencing Germany’s approach. But sometimes the school principal has to realise that it is not enough to make the errant youth write a thousand times “I must not tell lies in class” or “I must keep my promises”. If he proves himself totally incorrigible he needs to be expelled.

The Greeks like to keep telling us that they are the cradle of modern civilization and also the inspiration for the world’s greatest sporting event – the Olympics. Agreed. And what is the greatest problem facing competitive sport in the 21st century? Doping. Greek governments have been “enhancing” their statistics and breaking their promises, rather than records, for years.

It is clearly time to expel Greece from the Eurozone and disqualify it, for a period of several years, from the benefits of EU membership.

The Greecy pole

When it was suggested last week by a sympathetic BBC interviewer that the Italian government’s decision not to fund Rome’s bid for the 2020 Olympic Games had cost Italy the chance of taking its place on the world stage, the interviewee retorted sharply “Italy has been on the world stage for 2000 years”. Meanwhile, the Greeks keep reminding us that, as the cradle of democracy and western civilization, their continued hammering by the European Union is beyond comprehension. We should be thankful, at least, that the Germans have not yet chosen to harp back to the past.

Greece really does appear to be sliding down a greasy pole. The new government has continued its predecessor’s vain attempts at improving tax collection while trying to make new taxes stick in a country in which, thanks to rampant corruption, tax evasion is effectively state sponsored.

On January 22, a list of 4152 tax cheats was published in an effort to shame people – they must be joking – into paying up. Most fascinating was the fact that, even though the authorities know where they live, most of them have not been prosecuted. This is evidently thanks to there being a backlog of 165,000 cases in the courts. One prominent exception is, top of the list, Nikos Kassimatis (an accountant!) with an amazing 952 million euro owed, who is currently serving a prison sentence for VAT fraud which has probably taken away his appetite to settle. In a country where the judiciary clearly has a problem getting its act together, this may not be a case of the punishment not fitting the crime but – to put it in perspective – had he been convicted just before Henry VIII became King of England in 1509 he would be looking at walking free about now (not allowing for a couple of hundred years knocked off from his 504 year sentence for good behaviour).

An earlier list of 6000 major corporate delinquents was made public in September 2011. First prize went to the Hellenic Railway Organization which was running incredibly late with an unpaid tax bill of a whopping 1.26 billion euro – a real achievement given the fact that its owner is none other than the Greek government.

The now famous aerial inspection of houses with undeclared swimming pools, reported as carried out at great government expense by helicopter surveillance when the same result could have been achieved on Google Earth, has at least caused economic growth in the form of an increased demand for camouflage material. It has not been reported whether swimming pool owners have been paying cash for these purchases.

Meanwhile, while various officials have been forced out for either having their palms greased or turning a blind eye to the actions of others, the government came up with two quite ingenious methods of improving collection. Firstly, the new and much hated (along with every other) property tax is to be collected through household electricity bills. Non payment would result in disconnection from the National Grid and, in winter, death from hypothermia. Secondly, there is some madly complex , novel system using a smart card that enables the authorities to track a taxpayer’s payments. In keeping with Greek tradition, use of these cards is voluntary although it is not clear why the authorities don’t just start by looking up the names on that tax dodger list in the telephone directory and go knocking on their doors.

Alongside tax collection, privatization and reduced salaries, Greece has also been told by the EU and IMF to revamp its tourist industry. Knowing the Greeks’ record on compliance, left to their own devices, this will probably result in a new set of floodlights for the Acropolis and creation of more , euphemistically titled, clothing-optional beaches where German tourists can get an all-over tan while they are being burnt at home by the forced write-off of Greek sovereign debt.

Brussels Sprouts

Quiz: Name the President and Foreign Minister of the EU. Clue: He was Belgian Prime Minister. Second Clue: Belgium is a country next to France

Quiz: Name the President and Foreign Minister of the EU. Clue: He was Belgian Prime Minister. Second Clue: Belgium is a country next to France

“I never forget a face, but in your case I will be glad to make an exception”.

Groucho Marx’s famous line haunted me the other day as I tried, in vain, to remember  the name, face or other distinguishing feature of the first (and only) person I ever met who worked in Brussels with the European Commission. All I recall is that he was a smooth-talking, post-pubescent All American Boy  wearing khaki trousers, a blue Oxford shirt and navy blazer. He spoke with the confidence of a young man who had been to enough college lectures about Europe to know he could teach it a thing or two. C’est tout, as they say  at the epicentre of European folly  and promptly translate it into 22 other languages. With 27, going on 28, countries to cherry-pick its people from, I have never been able to fathom how this New World imposter managed to elbow his way into the bastion of the Old.

I admit that I have no time for the faceless bureaucracy of Europe. Those guys would give the Circumlocution  Office in Dickens’s Bleak House a real run for its money. Legislation starts its life at the European Commission where 27 individuals, whose main claim to their position is that their national governments needed to be rid of them,  churn out competition choking ideas by the kilometer. The Commission sends its proposals to the directly elected European Parliament together with the ever-changing Council of Ministers (made up of 27 ministers who fancy a day-trip to Brussels) for them to mull over.

While both the Parliament (directly elected) and the Council (constituting representatives of national governments) can put a tick in the box on the form that says “democratic” , in reality that democracy has virtually no meaning. Whether followers of Hobbes, Rousseau or Locke, the raison d’être (when I think of the waste in the EU, those French expressions just keep on coming) of any system of government is the organization of civil society. The European Union is not (at least, yet) a civil society. It is at least 27 civil societies (some more civil than others). 27 civil societies cannot produce a representative government. What they CAN produce is a serious irritation to the skins of their societies – and that they have done very effectively.

End of world domination?

End of world domination?

The respected contemporary historian, Niall Ferguson, points out in his recent book “Civilization”, that one of the main reasons that “The West” completely eclipsed “The East”  over the last 500 years was the competition between the myriad of States in Europe. The Industrial Revolution was led by Britain not because the Greatest Nation in the History of the World (sorry, I had to get that in) invented everything (it didn’t), but because labour costs in Britain were comparatively high, which encouraged innovation to improve productivity.

Well, after the better part of a century of a world dominated by Communism, National Socialism and Socialism, over the last 30 years it has looked like we are finally getting back on track with the word competition making a comeback in the lexicon of polite English, and the East not overcoming the West but joining it.

Did I forget something?

With the collapse of Planet Earth’s financial system a few years back the world’s governments realized (once again) that, while competition is a grand thing and the financial sector is a critical part of world growth, that same financial sector has the power to really screw things up for everybody bigtime so it needs regulating.

The Dodd-Frank Act in the US and the UK’s Financial Services Act 2012 represented the verbose but fairly measured responses of the two most significant financial sector nations.  The Basel Committee, established originally by Central Bankers, came up with Basel III revisiting the capital adequacy of the international banking system – which, while inevitably attracting a degree of controversy, is the most appropriate response  for bankers to a crashed financial system.

With the rational responses safely on the road, it was inevitably time for the We-Want-To-See-Blood Brigade to get going. The British Government had briefly, and ignominiously, flirted with a super tax on bankers’ bonuses (it would have been much more fun to burn them at the stake), but soon realized that revenge maketh not sound economics. Meanwhile, across La Manche (there I go again) President Folies Bergere still insists he wants to bury his nation with a 75% top income tax rate even though the courts have struck it down (who cares – when there have been 5 Republiques, what’s the big deal going for a 6th?). But, these, at least are anti-competitive responses of national governments pandering to the blood-lust of their electorates.

The EU, on the other hand, exercising what Rudyard Kipling’s cousin Stanley Baldwin once called “power without responsiblity, the prerogative of the harlot through the ages”, is left to run havoc with its bureaucratic chainsaw through the back streets of Europe.

Following a mad agreement in February to limit bankers’ bonuses which will just lead to higher fixed salaries and less flexibility in a downturn (the EU , to its chagrin, has not yet managed to sink its fangs into national tax systems), in March the EU Parliament decided to go after investment managers. And not just any investment managers –  the investment managers of Mutual Funds. These funds, which are generally not leveraged, do not cause any systemic risk to the economy. Furthermore, the Parliament wants the managers to receive at least half of their bonuses as investments in their funds – which ignores the fact that US investors are banned from investing in such vehicles so “Good Night, and Good Luck” to American Fund Managers; they could always, I suppose, get work in Brussels. In short, this is a load of piffle. The good news is that, in order for it to become law, it needs the agreement of the 27 National Governments  which is about as likely as World War III breaking out (which is what the EU was designed to prevent). Meanwhile, the Members of the European Parliament will be able to keep spending taxpayers hard-earned cash commuting between Brussels and Strasbourg (not to mention, their home countries). A far better idea than limiting investment managers’ bonuses would be to limit MEPs’ salaries – to zero, and send them home.

Weapon in next European War

Weapon in next European War

Groucho may have another lesson for us regarding EU bureaucrats. Following a luncheon interview with the legendary Alastair Cooke at Marx’s golf club, they were queuing at the till to pay. The middle-aged Jewish matron in front of them was taking her time finding the cash in her handbag to settle her bill. His signature cigar revolving in his mouth like an anti-aircraft gun, Marx finally fired a salvo at the cashier: “When you see the whites of her eyes – shoot!”.

Europe has fought several of its wars on Belgian soil. Could the next one be over free markets and competition? C’est la guerre.

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