Tax Break

John Fisher, international tax consultant

Archive for the tag “internatiional tax”

There is an i in America


In a sweltering, politically incorrect scene in Raiders of the Lost Ark, Indiana Jones – tired of the boastful swordsmanship of an Arab adversary – nonchalantly draws his pistol and shoots him dead. This could be a metaphor for the last hundred years: with a few exceptions, when the Americans have put their minds to it, their primacy in all things has meant they have the last word. And they know it.

So, I admit to remaining a little nervous about the impossibly named MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY RELATED MEASURES TO PREVENT BASE EROSION AND PROFIT SHIFTING which, had the Americans been among the 68 nations that signed it in Paris last month, would probably now be known for short by its acronym MCTITTRMTPBEAPS. But America was not among those 68 nations, so it is known affectionately as The Multilateral Instrument. In tax terms it is a miracle up there with splitting the Red Sea and walking on water but, to paraphrase Michael Jordan: ‘There is no i in team, but there is in America’ – the Americans are just not good at playing a team game.

The Multilateral Instrument is the most unlikely victor in the mammoth OECD Base Erosion and Profit Shifting enterprise of the last four years. In order to ensure a fairer playing field in the world of international tax, there was the daunting prospect of the need to adjust thousands of bilateral double taxation treaties – Mission Impossible. Then somebody – probably the sort of person whose optimism leads them to walk confidently over the edge of a cliff – came up with the idea of getting all the countries to agree to a super-agreement that would take precedence over the myriad treaties. Back in 2013, any sane human being would have said it was a case of Taxworld meeting Disneyworld.

But, by ingeniously including Get Out of Jail Free cards whereby member states could publicly opt out of individual provisions of the Multilateral Instrument, everybody who was anybody (apart from the biggestbody) was able to cherry-pick and sign up. As a result, within a couple of years, the game will be up for such fun pastimes as hybrid mismatches, treaty abuse, and permanent establishment avoidance. Against that will be improved dispute resolution, as well as the prospect of arbitration in intractable situations. Tax heaven (as opposed to haven) on earth.

So far, other than the United States, the only other G20 nations not to sign up are Brazil and Saudi Arabia. Perhaps the Saudi Arabians are still smarting from Harrison Ford’s one-upmanship nearly four decades ago, and are hanging out for the prospect of being the last nation standing. I can’t wait for the new Indiana Jones movie scheduled for 2020.

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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