Tax Break

John Fisher, international tax consultant

Archive for the tag “G20”

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.

The life and times of Prince George

British Open Champion July 21, 2013. Love the hat

British Open Champion July 21, 2013. Love the hat

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

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

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

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

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

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

William, you are in England, remember?

William, you are in England, remember?

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

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

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

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

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

Normal people

Normal people

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

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

Post Navigation