Tax Break

John Fisher, international tax consultant

Archive for the tag “GAAR”

Tax Wars: The Authorities Strike Back

Gagwriter extraordinaire

Gagwriter extraordinaire

Suicide is not a laughing matter. Last week marked fifty years since American poet, Sylvia Plath, took her own life, and the benefit-of-hindsight news stories on the subject were uniformly depressing. It is interesting, therefore, that one of the most successful comedy series in television history opened each week with a song about suicide. Thirty years ago this month  Alan Alda climbed into a helicopter, circled over an improvised “Good-bye” message set in the Korean soil, and, together with M*A*S*H,  flew into the sunset.

It transpires that, after seeing the 1970 film,  it was “Suicide is painless” with such cheerful lines as: ” The game of life is hard to play, I’m gonna lose it anyway”,  that inspired Larry Gelbart to script and produce a TV series. Played in a minor key, the melancholy tune exposed the funny, but almost tasteless lyrics, as pure irony – the song was anti-war. Screened when the Vietnam war was at its most painful to the American people (not to mention, the collaterally damaged residents of Cambodia and Laos), Gelbart fought with CBS over the infantile canned laughter that was shoe-horned into every pathetically unfunny US comedy series of the time – noting that there was no canned laughter in the real Korean War. He ultimately achieved a compromise whereby he was allowed to omit the puerile cackling from operating theatre scenes (MASH stood for Mobile Army Surgical Hospital). It is to Gelbart’s  credit that he managed, like his subsequent triumph with Dustin Hoffman’s cross-dressing “Tootsie”, to avoid turning the whole thing into a sick (sic)  joke.

We tax planners, of sedentary build and heavier step, are sometimes less nimble with our words and actions. Tax planning can sometimes be a sick joke, warranting a single finger salute down one’s own throat. Take Spain, for example (sometimes, I wish they would).

If they consider this fair, no wonder they don't pay tax

If they consider this fair, no wonder they don’t pay tax

When the Spanish Government hiked the VAT rate to 21% last September as part of the austerity programme resulting from the Euro crisis, a theatre in a small town in Catalonia found a way round the increase. Staple foods were still only liable to 4% VAT, so the theatre owner received permission from the town council to set up a vegetable stall outside the box office, where theatregoers could purchase a carrot for €15 – €17 inclusive of 4% VAT (the difference arising, presumably, from variances in size of the carrot). Free with the carrot came a theatre ticket. It is understood that, prior to the commencement of performances, patrons were asked – in addition to turning off their mobile phones – not to munch their carrots (which, apart from the noise, presumably might be needed for re-admission if they popped out in the interval). Had I been the Spanish authorities, I would have garotted the lot of them and fed them to the bulls.

This kind of shtick gives tax planning a bad name. It is the equivalent of throwing a custard pie in the face of the government to the accompaniment of pathetic (canned) laughter or, to be more on topic, spitting out a liquidised carrot giving the “hilarious”  impression of spontaneous vomiting. Yuck!

It appears, strangely,  that there is nothing illegal in what the Catalonian Jesters did. On the other hand this kind of tax avoidance is definitely way beyond the parameters of what members of  the Spanish Cortes had in mind when they conjured up the legislation.

There are currently moves around the globe to curb excessive tax avoidance, in the form of General Anti Avoidance Rules (universally known by the acronym GAAR, which onomatopoecially  sounds pretty much like someone with a single finger stuck down his throat).

Britain’s new rules should enter into force in the next few months while India, to the relief of foreign investors still digesting the Vodafone case, has delayed implementation until 2016. Australia and New Zealand have had rules for donkey’s years while Canada came on board in the 1980s and China a couple of years ago. The US has something  slightly different because the US always has something slightly different.

Occasionally, committees have been known to do a good job

Occasionally, committees have been known to do a good job

Although, in principle, the GAAR is a pretty slam dunk concept, it is in practice highly controversial. On the one hand governments need to be able to curb the most blatantly aggressive tax planning; on the other, investors and businessmen crave certainty while a GAAR instills fear (often justified) that virtually everything is up for grabs. Methods to try and achieve maximum fairness include having a regular tax authority committee, rather than individual tax officers, to decide on GAAR cases accompanied by very narrowly defined terms for applying the GAAR. Ultimately, the GAAR is, by definition, subjective and there cannot be any perfect answer. It depends from which angle you look at it, and both tax authorities and tax advisers often contort themselves into the strangest of poses to obtain the weirdest of views.

With all the drama of the tax wars (dear reader, allow me my fantasies) it is probably high time  for a TV spin-off of another major film. How about the mega-successful, Les Miserables ? The tax profession would be very happy with the current cast – Hugh Jackman as the morally superior tax planner Jean Valjean making the world a better place and Russell Crowe as the stickler-for-the-letter-of-the-law tax enforcer Javert. The world’s tax authorities might, however, have a problem with this. They are more likely to go for the late Heath Ledger, with a bucket of make-up thrown over his head and an entire red lipstick smeared over his lips, as a psychotic Valjean and Christian Bale as the black-caped saviour of the universe. Had Larry Gelbart still been around to take on the project, he would have been challenged by “One day more”. Written in a major key, it includes the sickest of Javert’s lines  “I will join these little schoolboys, they will wet themselves with blood”. On second thoughts, maybe he would have just turned up the canned laughter and comforted himself with the fact that all the characters were French.

Composing tax laws

Remember the good old days before they invented healthy living?

Returning to the gym last weekend after a fortnight, literally, off the treadmill, my rendition of “I’m back” in a passable Austro-Californian accent failed to register any reaction on the face of the young lady manning the reception desk. Instead, she merely ordered me to furnish my annual medical certificate that covers them if I suddenly keel over pulseless on one of the bank of motorized zimmer frames lining the main hall.

Once up and running (or, to be more precise, walking in a sweat) I started fiddling with the “Personal Entertainment System” that my poor- man’s gym has in place of an Olympic-size pool. Surfing the channels of endless mediocrity, I was amazed to hit the one scene I could bear from the excremental Austin Powers trilogy. Powers, alias Mike Myers, is in 1967 Carnaby Street together with Heather Graham being serenaded by Elvis Costello singing “I’ll never fall in love again”. Costello is  accompanied by Burt Bacharach on the piano. Bacharach, of course, composed that song along with a disproportionate number of other hits of the 60s and 70s. Why was I  amazed? Because just that morning I had read Hal David’s obituary in the newspaper. Hal who?

The lyrics Costello was singing, along with those of countless other Bacharach songs stretching back over 50 years, were composed by Hal David. But as with so many other songwriting duos the lyricist went largely unsung. Take the words away from a popular song and  you have left the potential for a symphony orchestra masterpiece. Take the music away from a popular song and all you have left  is a  rhyme fit for a birthday card.

Bacharach, Warwick and David could afford not to fall in love again

Sweating away, I tried to imagine the scene of those two giants composing “I’ll never fall in love again”.

Burt: I’ve got this tremendous catchy tune. It just came to me when I was  jabbing a couple of stuck  keys on the piano. It is lively, happy, joyous even – maybe a song about the wonders of love. Come up with the lyrics, Hal.

Hal: I know what to do! I am going to write a totally depressing song about a girl who has been mistreated and jilted so often that she has given up hope about ever loving again.

Burt: That’s not what I had in mind, Hal. I think you are misreading the music.

Hal: Do you have any idea how hard it is to put musical ideas into words? You do your job and I’ll do mine. Now let’s get down to business. What’s the worst thing for a gal hopelessly in love?  Answer -when the guy never phones her. I can’t think of  a rhyme for that.

Burt: I know. Instead of ‘phones her”, say “phone ya” and that rhymes with pneumonia, which I just recovered from…Heck!  I don’t believe I just said that.

Hal: You are a genius, Burt. You should write the lines and let me jab the piano. In the meantime, have you got another zippy, cheery tune. I’ve had an idea about a guy who is always getting rained on and whose feet hang over the end of the bed. It will just knock them out.

“The law is a ass, a idiot!”

Apart from listening to my Burt Bacharach (no mention of Hal David) double album on the way to the office (I joke not), I did not give any more thought to this songwriting business until a call mid-week with a senior tax officer. For the last year, we have been trying to find a way around an absolutely non-sensical provision in the tax law that even the tax authorities admit is daft. We keep hitting a brick wall. “Find us a basis in the law  and we will try and help”, we are told, “But otherwise it needs a change in the law”.  On the other hand, when it is the other way round and the law appears to clearly permit an interesting tax planning device, the authorities wave treaty limitation of benefit clauses in our faces or General Anti Avoidance Rules and tell us “This was not the intention of the legislature”. It is not fair.

Tax law follows the songwriter principle. The legislature writes the music and the tax authorities the lyrics. The music is the spirit of the law – what the lawmakers were trying to achieve. The lyrics are the clauses of the tax code, often drafted by the tax authorities at the behest of the lawmakers and then enforced by them. The lyrics are almost by definition an inadequate (and sometimes utterly perverse) vehicle for conveying the spirit and must therefore take a back seat.  If anti-avoidance provisions instruct the tax authorities to protect against tax planning due to ingenuity or just plain bad drafting, then the authorities should similarly be required to ignore provisions in situations that clearly go against the spirit of the law.

Thousands of years ago Jewish law established the principle of “Sit down and do nothing” in circumstances where performing a positive act required by law (as opposed to all the Thou Shalt Nots which unfortunately remained inviolable) would result in an unacceptable result in the specific circumstances. Tax officers the world over are generally very good at sitting down and doing nothing and maybe it is  time to put that trait to good use. Drafting is often so imperfect, and getting to court where such matters may be solved so expensive and time consuming,  that tax authorities should be instructed, after installing suitable alarm systems, to simply not enforce aspects of tax laws that go against all logic. In other words, they should listen to the music and check that the lyrics really fit.

And my trainer said I will never look like Schwarzenegger

When Arnold Schwarzenegger first appeared in the Mr Universe contest in 1966 clad only in a pair of skimpy trunks and flexing his unbelievable muscles like many of the  dumbbells around him, few paid attention to the accompanying music. It was the theme from the film “Exodus” that described the amazing acts of heroism and sheer perseverance that, against all the odds, led to the establishment of the State of Israel so soon after the Holocaust. The lyrics at the time said he was an up and coming muscle-man. The music said he was going a lot further. Hollywood  Superstar, Governor of California – I wonder how the receptionist at the Gym would have reacted if HE had walked in and, despite his lousy accent, announced: “I’m back”.


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