Tax Break

John Fisher, international tax consultant

Archive for the tag “International Tax”

Keep Calm and Carry On

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About as intellectual as it got

The British have always been a supremely pragmatic people. It was thanks to a fickle king that they knocked religious hegemony on the head early on, and thanks to another misguided monarch that they got their revolution out of the way before the Rousseaus, Marxes and Engels of the world could fill the vacuum with an ideology. Indeed, it was the utterly pragmatic empiricist John Locke who tidied up the mess in the latter half of the seventeenth century.

It is, therefore, no surprise that – despite the cataclysmic events in Parliament surrounding Brexit – the British Government has been beavering away, preparing for the morning after (which, because Brexit is planned for the night of Friday March 29th, will be effectively Monday April Fools Day).

The big news from Davos last week was that Britain and Israel have confirmed ‘in principle’ a Free Trade Agreement similar to that enjoyed between the EU and Israel. With £10 billion of trade, that is eminently sensible for both parties. What received less coverage was the signing  a few days earlier of a protocol to the double taxation agreement between the two countries that dates back to 1962.

Protocols amend treaties. Hearing the words ‘protocol’, ‘tax’, ‘treaty’, ‘Israel’, ‘UK ” (not strictly a word) in the same sentence came as no surprise to my tax-attuned ear. What with all the OECD changes in respect of Base Earnings and Profit Shifting (BEPS) and the automatic exchange of information, protocols are the name of the day. The media reports (that all appeared to stem from the same press release) gave a few details of new provisions and mentioned the obvious. It was only when I downloaded and read the document (who, for heaven’s sake, ruins the party by reading primary sources these days?), that I realized the enormity of what had happened. Perfidious Albion, God bless her!

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What an interesting job

Israel and the UK initialed a new treaty to replace the 1962 one way back in 2009. I remember it well, because I was informally consulted just before initialling, and found a couple of boo-boos. In order for a treaty to take effect, each country needs to take it through whatever processes its domestic law requires – but the stages are identical: initialling, signing, ratifying. In the UK, following the signing,  an Order in Council is issued. That is a process where a Government representative rattles off the wording of a load of boring regulations while the Queen listens (yeh, sure!) and, in the case of a tax treaty or protocol, it goes to a delegated  legislation committee, where it is considered and then brought before Parliament. It can then be ratified.

The 2009 treaty hit a total snafu after initialling. The original 1962 treaty bore the wording: ‘the term “Israel” means the territory in which the Government of Israel
levy (sic) taxation’, and  ‘the terms “resident of the United Kingdom” and “resident of Israel” mean respectively any person who is resident in the United Kingdom for the
purposes of United Kingdom tax and any person who is resident in Israel for
the purposes of Israel tax’. It was widely understood that somebody in London (I hazard a guess, from the Foreign Office) decided that Israeli residents of Judea and Samaria aka the West Bank aka the Occupied Territories should not be included. That was never going to pass muster with  the Israeli Government, and both sides got back in their trenches for the next decade.

But, times change, and these days it might be cheekily argued that go-it-alone Britain needs Israel more than Israel needs Britain (although Britain is still a very-nice-to-have). And that treaty is seriously prehistoric. Meanwhile, as Professor Emeritus of Empire Building, Britain had to watch its step.

Then came the Eureka! moment. It was time to sign protocols with treaty partners. A month after  the UK’s High Commissioner in Cyprus signed with the Cypriots, a British government representative signed with the Israelis. But, there was a subtle difference. The Cypriot protocol ran to a familiar 3 pages; the Israeli protocol ran to an eye-boggling 19. The British and Israelis had effectively shoehorned the long-dormant new treaty into the Protocol, simply passing over the naughty bits.

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I wonder if Mel is one of George’s

The signatory for the British Government was one Mel Stride, Paymaster-General – a name and title which, together with the plot, could have come straight out of a John Le Carre novel.

All that now remains is for the Queen to cock a deaf’un, and for Parliament to be pre-occupied with Brexit. (Israel also needs to ratify).

As regards the new provisions, they can be easily found popping up all over the internet in the same form as they were initially announced.  What seems to have escaped the journalists’ attention is the long-awaited exemption on UK pensions received by Israeli residents (as opposed to the highly-specific exemption from withholding tax on interest and dividends to Israeli pension funds, which was included). New and potential expats, benefiting from a ten year tax exemption on foreign sourced income in Israel,  should be talking to their advisors.

The Celtic Tiger changes its stripes

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I can’t wait for 2046

The biggest debunker of conspiracy theories has to be what the British call ‘the thirty year rule’  for the declassification of secret documents. It is not that the released documents reveal the truth (the really juicy ones are locked up for far longer); it is, rather, the realization that the behind-the-scenes machinations of government way back then were far more chaotic than anything we imagined at the time. Conspiracies need thought.

So, my conspiracy theory about Ireland’s mammoth tax bill  to pharmaceutical giant Perrigo towards the end of last year will probably be utterly disproven sometime in 2048. But, by then I will be either dead or too old to care. So, here goes.

The (undisputed) story:

In 2013 the (undisputed) Irish Elan Corp sold its interest in Tysabri, a multiple sclerosis drug, to Biogen Idec Inc for a lot of money. A few months later (undisputed) US corporation Perrigo Inc entered into an inversion transaction with Elan. The transaction involved the smaller Elan achieving ownership of Perrigo, with the Perrigo shareholders receiving a majority of the shares of Elan. The principal  (undisputed) advantage to Perrigo was a reduction in future tax. This would be achieved by (calculated conjecture) including future non-US acquisitions under the Irish parent, thus bypassing the then draconian US tax system, and engineering debt from the US to the Irish parent. The latter  would reduce US taxable income at 35%, and increase Irish taxable income at rates of between 0% and 25%, with the Irish foot secretly holding the scale at the lower end thanks to leprecaunish Irish wheezes such as the Double Irish and Single Malt schemes ( the Irish clearly chose names they were convinced could never be traced back to them).

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Ireland is quite a distance

In December 2018 it became known that the Perrigo group (Elan had very cleverly changed its name to that of its new subsidiary) had been issued a bill by the Irish tax authorities for  €1.64 billion. The justification was the reclassification of  the profit on sale of the intellectual property to Biogen from trading income (somewhere between 0% and 12.5% tax) to capital gains (33%). Perrigo promptly announced  that  it was suddenly hard to run a US customer-service organization from the other side of the pond. It is now rumoured that the group is threatening shelving plans for expansion in Dublin unless, presumably, their appeal against the tax assessment is successful.

And now, the conspiracy theory:

As opposed to the $13 billion tax claim from Apple forced upon Ireland by the EU (poor Ireland), the issue  here is what one commentator called Tax 101 – the party trick of tax advisers worldwide walking the tax classification tightrope between capital gains  and trading income, ready at all times to pull the tax-saving bunny out of their moneybags. The sale of the IP was several months before Perrigo merged into Elan. It is to be presumed that Perrigo ordered a tax due diligence, and even if some bits and pieces were obscured by the Guinness, had some inkling of a potential €1.64 billion tax bill. Either they received an utterly obese indemnity from Elan’s shareholders, or there was a clear understanding from somewhere that lreland’s long-standing open-sewer policy of encouraging American investment at all moral cost meant that the authorities could be expected to stay out to a liquid lunch.

Fast forward to the beginning of 2018, and the US had a new tax law . The complementary regimes of Foreign-Derived Intangible Income on certain income of US companies from abroad, and Global Intangible Low Taxed Income of non-US subsidiaries, established a planning benchmark US effective tax rate  in either case of  around 13% . Add to that new inversion rules and restrictions on interest deductibility, and the question that comes to the befuddled mind is: ‘Why Ireland?’

So, what does a country do when its economic raison d’etre is disappearing down the  sewer? It takes a leaf out of Donald Trump’s book – and thinks protectionism. But, in the case of Ireland – other than its beer and whiskey industries – there was precious little of its domestic economy to protect. Other  than its tax advantage, that is.

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And where do you think you’re going?

In October 2018 the Irish budget included, as expected, Controlled Foreign Corporation provisions as required by the EU (see Tax Break 1/1/19). What wasn’t expected was the early imposition of an Exit Tax (which was not due until 2020). Companies wanting to expatriate from Ireland will now face a 12.5% ‘capital gains tax’ – or, in other words, they are pretty well stuck.

All this opened the door for the Irish Treasury to take off its kid gloves, and treat captive foreign companies just like any other. The Irish seem to be saying to Perrigo: ‘You can check out any time you like. But you can never leave.’ I wonder how many Irish-Americans there are in California.

 

Telling it like it isn’t

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Very last call …

A rabbi, a priest and the secretary-general of the OECD walk into a bar… Not heard that one before? Read on.

Last Wednesday, January 2nd, as the 20th Knesset breathed its last before flatlining in the run-up to a General Election, the Finance Committee approved regulations paving the way for the introduction of the international ‘Standard for Automatic Exchange of Financial Account Information in Tax Matters’.

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Game over

The New World Order, where there is nowhere for the less-than-honest to hide their ill-gotten gains, has been heading this way to much fanfare for some time. Too long, in fact. Israel signed on to the G20/OECD 2014 initiative early on, and was committed to having the necessary legislation in place by January 1st 2017. This was to be followed by necessary bi- or multilateral agreements (it committed to two multilateral ones), necessary bilateral commitments to ensure  the other side would respect confidentiality – as well as being both legislatively and operationally sound – and technical guidance to Israel’s banks on how to provide data on accounts of foreign resident in standard international format (so they could be easily deciphered at the other end). Information exchange was to start in September 2018. In fairness, Israel didn’t score too badly other than on one rather critical point – although legislation was in place in mid-2016, well in time for the 2017 deadline, it could not come into force until accompanying regulations took effect.

Well, as the naysayers would have it, a miss is as good as a mile and the road to hell is paved with good intentions. By December 2018, there were only seven countries that were non-compliant: Antigua & Barbados, Brunei Darusallam, Dominica, Niue (is that a country or a spelling mistake?), Qatar, Sint Maarten and … Israel. This prompted a desperate letter from the secretary-general of the OECD to Israel’s prime minister, and the eleventh hour passing of the regulations last week, exactly two years and one day late. If you are going to be late, you might as well do it in style.

What went wrong?

The required regulations, as the American FATCA information exchange regulations before them, hacked at one of the mainstays of ultra-Orthodox society (and a much valued traditional Jewish institution)  – the ‘Gemach’. The concept is a simple one. Groups of largely anonymous donors provide money to an intermediary who generally disburses the funds as interest free loans to those in need. In the event the borrower is unable to repay, the donors (who have generally kissed goodbye to the money) have no recourse. Until now, these arrangements have had no legal or regulatory basis – essentially private arrangements that could run into incredibly large sums. When FATCA came along, Israel’s banks started closing Gemach accounts as they were unable to verify to the US authorities that there were no US ‘depositors’. On the other hand, as the chairman of the Finance Committee repeatedly protested, requiring a donor who gets nothing other than a place in Heaven out of the whole process to fill in forms for the tax authority is a kiss of death for the institutions.

A solution was found, with the evident acquiescence of the US authorities, for small Gemachim, and in August 2016 Gemachim generally were given two years grace, in which time they would – against their will – be brought under regulation, and they could organize their affairs to be compliant for the banks. To cut a long story short, after a lot of weeping and gnashing of teeth, including the flat refusal of the Bank of Israel and Capital Markets Authority to supervise them (The Capital Markets Authority lost, and ‘won’ the job), the very last piece of legislation to pass its third reading in the 20th Knesset was the attrition-much-reduced Gemachim Law, which paved the way for the Chairman of the Finance Committee to agree to approve the information exchange regulations.

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The only thing crooked about him

Had the script of this farce been written by the 2008 financial crash’s moral voice, then Archbishop of Canterbury Rowan Williams, the Finance Committee and Israel might have walked away with their heads held high. Williams had maintained that the ‘markets’ that bankers claimed dictated the path of the financial system, were – in Judeo-Christian – terms a form of idolatry, something man-made being attributed independent powers. He argued that modern financial transactions lacked the face-to-face component of yesteryear – it is much easier to default when lenders are obscured behind a curtain of intermediate transactions than when recognized at an individual or community level. Here were self-regulating funds that should not be collateral damage in the post-2008 meltdown regulatory war against the unfettered avarice of the players in the financial markets.

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There are always the traditional methods

However, Anglicanism hasn’t had much of a look-in around these parts since 1948, and  the ‘guilty’ Knesset Finance Committee was chaired until last week by an ultra-Orthodox rabbi-politician not given to philosophical musings, but rather to horse-trading in the name of his flock. The reason there was a need for a law regulating the Gemachim was that a number of them, predominantly in the United States and Israel,  had been the facilitators of big-time money laundering and tax evasion. A war of attrition in the long process of arriving at the final wording,  holding the inevitable (and, hence, unforgiveably late) information exchange regulations hostage,  is considered  to have severely compromised the regulatory effect of the law. Any collateral damage ultimately suffered by the moral majority of Gemachim is thanks, therefore, to the unsavoury dealings of some of their number, rather than the excesses of the financial system.

The last weak joke of the 20th Knesset…

Before our very eyes!

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The Ten Commandments weren’t supposed to be easy

When it comes to aphorisms, ‘Oldie but Goodie’ is high on my list of suspect examples. Generally quoted by the generation above mine to fill the void of laughter following a particularly hackneyed joke,  it only  rolls happily off the tongue when served with lashings of irony.

Such was my reaction to a ruling published by the Israeli tax authorities the other day. It stumbled through a long preamble, only to mention, before things really warmed up, that it was essentially in line with another ruling from Christmas week in 2016. It begged the question: ‘ Why waste busy peoples’ time knocking out another one?’ Was it because it was so enjoyable the last time, we had to be fed it again?

Not quite.

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‘Well they would, wouldn’t they?’

The new ruling, though causing no surprise to the cynics that make up the numbers in our profession, is well beyond a joke. The Man on the Clapham Omnibus would surely ask: ‘How could they?’

Well, they can, and they did, and it was obvious they would.

The ruling related to an individual who had left Israel for the US, breaking residency, and  subsequently returned home. As part of his US salary package, he received options with various vesting periods. The tax authorities had to decide what part of the financial benefit from exercising the options should be taxed in Israel.

Thus far, we were in 2016 country. That ruling, based on court precedent, established that the profit earned abroad from options exercised while the individual was still abroad would not attract any tax in Israel, as it was not sourced in Israel. So far, so good. Given that information, and asked an inane quiz question: ‘What  taxation would apply to the profit earned abroad during the vesting period if the options were simply exercised in Israel on the individual’s return to Israel?’, our Clapham Omnibus gent would reasonably have come up with: ‘Zero’. At that point, the trapdoor under his upper deck seat would have opened and sent him crashing into the arms of the conductor collecting fares below.

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‘You’ve got to pick a pocket or two’

The decision given, in 2016 and once again in 2018, was that – although Israel operates a standard modified personal tax basis (Israeli residents are taxed on their internationally sourced income, and foreign residents on their Israeli sourced income), as salaried employees are charged to tax in Israel on a cash basis, the entire amount should be charged to tax in Israel, even though it was not sourced in Israel.

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A rare oldie but goodie

The 2016 decision, with its literal accuracy but flawed concept (cash basis is a timing concept, not a country source concept), stopped there. Clambering to his feet, the bus inquisitee – still hoping for the holiday for two in Benidorm – would have accepted the challenge of the next question: ‘If the individual once more leaves Israel, and he subsequently exercises options abroad, part of the vesting period of which was while he was Israeli resident, what would be his tax in Israel?’ Easy! Already seeing in his mind’s eye his six-pack lying on the beach next to his bright yellow lilo, he would answer: ‘Zero! He is on a cash basis!’ At which point the floor would open up and – if he managed to avoid the rear axle of the bus – he would be left, not believing his bad luck, in the middle of the road, holiday dreams in tatters. All thanks to the November 2018 decision that – correctly – states that the income sourced in Israel is taxable in Israel with no reference to where it was received. The problem is that it also restates the 2016 ruling’s cash-basis conclusion, making it inconsistent and illogical.

The 2016 ruling brought a sardonic smile to my face. The 2018 ruling is laughable.

I think I’ll try this one on my kids.

It’s just not cricket

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He might still need more proof of residence than this

Last month’s news from India, that tax residency certificates would no longer be a must for  foreigners claiming treaty benefits, will come as a welcome relief to the finance departments of organizations doing business with that great country. Obtaining certificates of residence can be a pain in the neck, especially when they are needed quickly. When it comes to transparent partnerships, like accounting firms, the bureaucracy can be a nightmare.

Although at first sight this announcement may put India in a positive light, it is more a reflection of the relief to heads no longer banging against brick walls – the original requirement for certificates stemmed from a silly amendment to the law in 2012. There is so much that is daft about India’s approach to international taxation.

When I hear the words ‘India’ and ‘Tax’ juxtaposed, I invariably think of Kipling’s quote ‘Power without responsibility – the prerogative of the harlot throughout the ages.’

India – the largest democracy on Mother Earth – has, when it comes to international tax, a split personality. On the one hand,  its appellate tribunals and courts wax more lyrical than anybody else on tax  issues brought before them. In 2017 it was estimated that nearly a quarter of a million disputes were awaiting resolution. Every international tax practitioner knows that, when examining the case history of OECD treaty articles, it is rare for a bon mot from India not to pop off the page. On the other hand,  India maintains primitive imperialist designs on the tax that rightly belongs to others (I wonder what Gandhi would have said). Its Dividend Distribution Tax, declared a tax on the distributing company rather than a withholding tax on the recipient, has deftly (and, I believe, uniquely) sidestepped treaty withholding restrictions, while its technical services tax has long-armed income that should have nothing to do with India. Then there was that beautiful moment a few years back when they followed seller Hutchison and buyer Vodafone up the food chain, and rather than going for  a bite out of the indirect seller’s cake, tried improbably  to extract it from the indirect buyer’s mouth. That’s chutzpah.

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It could have been worse. It is only an accident of history that they didn’t produce Austin Allegro doppelgangers

Perhaps, however, this recent loosening of the tax belt is not just a blip, but a symptom of something bigger. Since 2014 India has jumped a remarkable 65 places in the World Bank’s Ease of Doing Business rankings. Starting in 142nd place, it is today sandwiched at 77 between Uzbekistan (the butt of many of Borat’s jokes) and Oman. To show they were aware that the century had turned, they even stopped production of the Hindustan Ambassador in 2014 –  a copy of an early model of the Morris Oxford that the British replaced nearly sixty years previously. That’s progress.

Microsoft, IBM, Proctor and Gamble, Tesco, Wallmart, motor companies (thank heaven not British) – India is opening up for business. This has been accompanied by a massive reform in indirect taxation.

It is to be hoped that international direct taxation will be next. Wouldn’t it be nice if those legislators who draft the laws so suspectly could listen to those world-class judges charged with interpreting them so expertly? Or is that an encroachment upon the foundations of democracy?

The taxman takes his cut

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At least he also had a day job

Initially dubbed ‘the war to end all wars’, the act of carnage that ended a hundred years ago this week had to later suffer the ignominy of having ‘First’ stuck at the front of its name. While recognizing the sacrifice of the combatants and the tragedy of 20 million dead, subsequent generations have suggested the futility of the whole thing.

As the world prepared to commemorate those events, Israel’s judges, perhaps ironically, had to waste their valuable time on something else absolutely futile – the taxation of professional poker players (not one, but two). The wording of the judgements (and appeals) gave the distinct impression that each learned judge would have been quite happy for the young men in question to take their chances being ‘sent over the top’, but they had no choice other than to give them a fair hearing.

Although I have no sympathy for gamblers, and in both cases the end result was the payment of tax at marginal rates (one of them had to be reined in by the court as an Israeli tax resident), the result bothered me.

Israel, like other tax jurisdictions, operates a system of marrying income to various sources (such as business or vocation, work, interest). The word ‘income’ is defined in dictionaries as deriving from capital or labour – fitting nicely with the sources mentioned in the Income Tax Ordinance (which is just as well, really,  since it is called the ‘Income’ Tax Ordinance). The proceeds from gambling and lotteries  do not derive from labour or capital, and did not therefore have a place at the sources table in the law.  In the course of time, however, legislators were reminded of HL Mencken’s definition of Puritanism: ‘The haunting fear that someone, somewhere, may be happy.” As a result they shoe-horned an extra clause taxing  profits from gambling, lotteries and prizes. To make the whole thing work they called  the resultant windfall ‘income’, a sleight of hand that would not disgrace the most unsavoury of card sharks.

However, when the tax authorities brought the two intrepid poker players to the table, they did not play for the 25%  tax that the misplaced clause then legislated, but full marginal tax on the basis of ‘business’ income. Both these characters were, after all, professional players. The position of the courts was that – similar to business income – their income could be considered income from a  vocation, their expertise implying effort and, therefore, labour. The last hand played was the appeal against the tax authorities’ insistence not to allow expenses in the production of income such as flights, hotels and payments to the casinos that financed some of the tournament games (the mind boggles). Here, the judge was consistent – if it’s income from a vocation, it’s a vocation, and proven expenses should be allowed.

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And so did they…

The bug in all this is that while these poker players were taken out of the bunker of  restricted tax  onto the battlefield of regular income, there is still dissonance.

The various sources of income (labour and capital) that combine to form the backbone of the Income Tax Ordinance are inextricably linked to Gross National Product and Gross Domestic Product. It isn’t by chance that governments measure their tax take accordingly – by taxing income, they are  taking their share of the value created in the economy.

Gamblers – professional or otherwise – do not add to the value of the economy. It is a zero-sum game. One person’s  gain is another’s loss. When, the legislature incorrectly added a section on gambling to the Income Tax Ordinance instead of legislating an excise tax (as they should have done),  they at least had the sense to exclude the possibility of setting off losses from other sources of income while isolating the gambler’s activity.

In transferring professional gamblers to a business/vocation basis, while the rate of tax may be higher, in a perfect world the overall tax take should be zero  (or negative due to expense set-off). Of course, in practice, most of these games are taking place abroad against non-Israeli taxpayers which clearly changes the domestic picture – but today  the name of the game in international tax  is a level playing field.

It feels like somebody wasn’t playing with a full deck.

Who wants to live forever?

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Not quite the tax doctor I had in mind

There was a time, not long ago, when the ideal higher education of a tax specialist was a combination of law and accounting. With the gradual death by asphyxiation of income tax planning, the ambitious young prospective practitioner might  add a third arrow to his bow – doctor of medicine.

Many would argue that, despite frustrating bureaucracy,  the gathering pace of intergovernmental cooperation in the war on tax evasion and money laundering is one of the great advances of twenty-first century society. However, the process has also brought to the surface long dormant legalities that most governments would have been happy to leave as long dormant.

Take American Estate Tax. A foreigner who dies  holding (not literally) more than $60,000 worth of  US securities, invites a bill to his estate in respect of US Estate Tax. That rule has been in place since, I believe, 1913, but has only been inadvertently enforced since FATCA rules forced international banks, on pain of lynching, to handle all withholding tax obligations on behalf of the IRS. The upshot is that savvy investors (especially those past the waterfall three-score-and-ten years) are deserting US securities, or finding obscure ways to invest indirectly.

But the problem does not stop there. In an increasingly negotiable world, where the successful can remain in daily touch with their homebound families and visit regularly, estate and inheritance taxes are often the death knell for staying put. And if that is not enough, some countries impose an insidious wealth tax.

If you wanted an example of a country that has, for years, seemed to encourage their citizens to get on their onion-laden bikes and seek comfort elsewhere, you need look no further than France.

A combination of estate tax and wealth tax (helped along by an aborted 75% top income tax rate) sent packing the likes of actor Gerard Depardieu (Belgium, and thence to Russia with love), and singer Florent Pagny (Portugal, who?). The typically French defense against the mounting exodus (some reports suggest some 10,000  since the turn of the century) was typified by the Defense Minister stating that those who love their country stay in France. Sacre bleu. To an Englishman like me, pro patria mori has never stood out as a French sentiment.

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France’s sixth biggest city

Well, it looks like Fortress France, at least, is finally taking baby steps forward under its exceptionally young new president’s tutelage.

A few weeks ago the prime minister proposed a severe curtailing of the wealth tax – restricting it to real estate. But, there is some doubt as to whether that will be enough to encourage wealthy French to return home – especially given that estate tax still remains.

Ultimately, unless the current passion for Balkanization (Spain, UK, Iraq) takes hold – creating a dampening of global mobility – there can be no room for estate taxes or wealth taxes in the future world order. Despite their political attraction as a component in the fair distribution of everything (optical rather than actual), they create a drain on national coffers.

In the meantime, expert tax planners will try to keep their clients alive long enough to move them out of undesirable post-mortem jurisdictions. Is there a tax doctor in the house?

Yes, Minister

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Keep it simple…

Looking confused next to the overhead locker of my assigned Business Class seat on a British Airways flight from Heathrow to New York last year, I was approached by a helpful flight attendant (if that is what stewardesses are called these days) who offered assistance. Pointing to the little picture indicating which mini-compartment was 12A, and which 12B, I told her I was unfortunately pictorially dyslexic. She looked momentarily sympathetic before bursting out laughing: ‘What do you mean, pictorially dyslexic? There is no such thing!’

For all I know, she was right.

The fact is that our brains have become so used to hard-edged information being pureed into easily digestible mush, that many of us find it hard coping with anything more taxing than a Facebook intelligence test. (I was recently informed I had an IQ of over 160 because I knew a photograph was of Adolf Hitler, rather than the other choices of Donald Trump and Michael Bloomberg. Surely everyone knows that neither Trump nor Bloomberg has a  moustache.)

If you think I am being unfair, take literature. In this day and age, if you want to be published, you have to keep sentences short, and multiple adjectives locked up. So, you would think that chucking the following paragraph – which doubles up as a sentence – at the reader on the first page of a 500 page novel might have condemned the author to obscurity:

‘In consideration of the day and hour of my birth, it was declared by the nurse, and by some sage women in the neighbourhood who had taken a lively interest in me several months before there was any possibility of our becoming personally acquainted, first, that I was destined to be unlucky in life; and secondly, that I was privileged to see ghosts and spirits; both these gifts inevitably attaching, as they believed, to all unlucky infants of either gender, born towards the small hours on a Friday night.’

Thankfully, the book saw the light of day  in 1850, not 2017, and  David Copperfield became one of Charles Dickens’s most-loved novels.

Until fairly recently, I believed that one area of intellectual pursuit that had escaped the brain surgeon’s knife was taxation. Taxation is complicated, and advisors have kept it complicated. How often have we watched with satisfaction as our clients’ eyes have glazed over, knowing at the end of a tortuous meeting that they will just tell us ‘to deal with it’?

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…or not.

 

Then – Shock! Horror! – in 2010 the British Treasury came up with the Office of Tax Simplification. 450 recommendations later – including such game changers as simplification of the corporation tax computation and out-of-date procedures still requiring paper confirmation for stamp duty transactions (themselves an anachronism) – the OTS published its first annual report. Apart from a ‘first annual report’ issued seven years after inception being a leading candidate for the accolade ‘the triumph of hope over experience’, the wording itself left hope for tax professionals:

‘The OTS is in a unique position to highlight issues, stimulate debate and act as a catalyst for positive change, being strongly connected within government, having exceptionally wide access to a range of deep expertise from outside government and speaking with an independent voice.’

Charles Dickens couldn’t have written a better paragraph (doubling up as a sentence) himself. In fact, it almost looks like the Office of Tax Simplification could come to rival Little Dorrit’s Circumlocution Office.

The spirit of Bleak House’s Jarndyce and Jarndyce lives on. Mercifully.

 

Some like it hot

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Will this save the planet…?

Political fossil Al Gore’s sequel to his Oscar winning environmental documentary ‘An Inconvenient Truth’ – ‘An Inconvenient Sequel’ – may have underwhelmed at the box office this month, but it provided a timely counterweight to President Donald Trump’s announcement some weeks earlier that the United States was pulling out of the Paris Agreement. Despite the protestations to the contrary of substantially every-government-that-is-not-America’s (as well as several of the States that enable the United States to be called the United States), without Federal US involvement all bets for preventing environmental Armageddon appear to be off.

Until recently, the Tax World’s contribution to the fight against this threat to our future generations had taken the form of airing the concepts of ‘Cap and Trade’ and ‘Carbon Taxes’ – the former involving the auction and trade of emission permits that seek to limit total pollution from certain gases, the latter a hit or miss, essentially regressive, tax on fossil fuels and suchlike.

Then, last month, things hotted up.

In his State of the Nation address, President Rodrigo Duterte of the Philippines told mining companies that ‘he would tax them to death’ if they did not clean up their act. Coming from anyone else, the statement might have been filed alongside Benjamin Franklin’s ‘nothing can be said to be certain, except death and taxes’, but Duterte has, for some time now, been proudly having drug pushers and other undesirables knocked off wholesale in extra-judicial killings. The message is clear – the president clearly reckons himself the biggest threat since Mohammed Ali throttled Joe Frazier in the Thrilla in Manila.

Indeed, Duterte also announced that, you-couldn’t-make-up-its-name, ‘Mighty Corp’ has agreed to pay the government a cool half a billion dollars to settle the mining giant’s alleged catalogue of criminal tax evasion offences. Simple when you have the method sussed.

And, to cap it all, any additional tax take from the mining sector is to be earmarked for local communities damaged by the mines, while processing of mineral resources is ‘requested’ to be performed in the Philippines before export, thus adding to employment.  Interesting, if worrying.

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…or will this?

With all due respect to Mr Gore’s valiant efforts, if the environment is to get back on track, the mob that elected Trump doesn’t need a staid documentary – it needs exciting Alternative  Facts. So, perhaps the real existential question now is whether there is enough material for Quentin Tarantino to make a movie about taxing environmental terrorists. The climactic scene: an Internal Revenue Service agent, in sleek black suit and Ray-Ban shades, standing with his foot pressuring the windpipe of a prostrate business executive, two revolvers cocked and pointed at the entrepreneur’s trembling head, spits, ‘You’re going to clean up the river in this goddamn town, or we’re going to tax you to goddamn death’.

All’s fair in love and war. And, if Mr Tarantino is looking for a working title, how about: ‘Kill Fake Bills’?

Was the Battle of Europe lost on the playing fields of Eton?

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What was that about Freedom of Movement in the EU?

‘History doesn’t repeat itself, but it often rhymes.’ That aphorism, attributed to Mark Twain, has been much on my mind  lately.

Anybody wanting to get inside the minds of the wrong-headed majority that tragically voted the UK out of the EU (and probably lit a fuse to both those abbreviations) could do worse than read one of Dickens’s less known novels, ‘Barnaby Rudge’, about the Gordon riots against Catholic legislation.

Although the situation in 1780 became violent while last week’s referendum ensured peaceful mob rule,  the cynical manipulation and ignorance that led to the riots should have been a cautionary tale taught to every schoolboy and schoolgirl  in the last century and a half.

In the weeks, months and years ahead experts will assess the carnage to be irrevocably wrought on the UK and Europe, .

From a tax viewpoint, the immediate damage would appear to be to the UK Holding Company regime, as well as Finance Companies and IP ownership. This arises from the future removal of the parent/subsidiary directive, and interest and royalties directive. These two directives guarantee exemption from dividend withholding tax and withholding tax on interest and royalties, respectively,  when paid by the other 27 EU countries to the UK. Following the UK’s withdrawal from the EU, withholding tax will be applied according to treaty. This will mean that Holding Companies, exempt from tax on their dividends, and Finance Companies and Patent Box companies paying low tax, will be at a disadvantage compared with EU jurisdictions. As the UK does not withhold tax on dividends according to domestic law, the UK is currently very popular as a holding jurisdiction – a popularity that is likely to disappear very quickly (like, tomorrow morning).

Thanks to the OECD’s BEPS project, most other disadvantages of the Brexit will already have been swept up in wider international agreements, while there may be some small advantage in not being penalized by the EU for offering State Aid to companies.

It is well known that Boris Johnson and David Cameron studied at the same elite school. While the Duke of Wellington may have declared that the Battle of Waterloo was won on the playing fields of Eton, it would appear that  the Peace of Europe may have been lost on that same dot of England’s green and pleasant land.

It’s simply not cricket.

Pupils huddle during the Eton Wall Game at Eton college in Eton, near London

Meeting of a future Tory Cabinet

 

 

 

 

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