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Archive for the tag “International Tax”

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?

Obamacare

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

 

 

 

 

Let slip the dogs of war

Even the Portuguese have a Triumphal Arch (what for, exactly?)

Even the Portuguese have a Triumphal Arch (what for, exactly?)

I have just emerged from a fascinating two-day conference in rain-soaked Lisbon. Despite the headline title, the real theme was inevitably the prospects for the Base Erosion and Profit Shifting project of the OECD, the rump of which is due to be approved by the G20 shortly.

The public proclamations on BEPS have displayed populist triumphalism while, in the course of the two days – to anybody who had any doubts before – it became clear that the actual prospects are far more modest.

Firstly, by not allowing the Americans to think this was an extension of their work on FATCA, the OECD didn’t manage to bring them to the party. The Americans never join anything anybody else comes up with first – take the Second World War, for example, where the fun only started after Pearl Harbor.

Secondly, by making the Digital Economy the flagship topic, even if the Yanks had been convinced it was all their idea, they were not going to Kamikaze pilot themselves into their own ship – all Digital Economy reforms are, by definition, anti-American.

Thirdly, as two former senior politicians, gentlemen who almost gave me back the naive faith in politicians of my youth, made blatantly clear – no nation, be it America or the other God-knows-how-many countries currently on Earth, was going to give up on any serious opportunity to tax.

Then there was Pascal Saint-Amans, the Frenchman behind the BEPS project, who  explained how he had charismatically convinced everybody to accept his proposals. It was a case of working towards ‘consensus’ rather than ‘unanimity’. And that says it all. Never trust a Frenchman with your wife or long English words. Consensus is a synonym for unanimity. He was trying his luck on us, a group of grey accountants, for whom words are things to be kept under the bed (where the Frenchman may also be hiding). Obfuscation (go on Pascal, look that up in your Collins English-French Dictionary) seems to have been the name of the game. Sell the OECD a pile of words and confuse everyone into thinking something is happening. People may think Saint Amans has worked miracles (if the Pope canonises him will he be Saint Saint-Amans?), but the real deliverable looks a lot more down to earth.

That is not to say that BEPS is a failure (you may be wondering, after all I said above, how I am going to climb out of that one). Transparency – Country-by-Country reporting, international exchange of rulings, examination of holding and conduit companies, and dispute resolution will all become reality, alongside the unrelated Automatic Exchange of Information.

But, sorry Pascal, you don’t get all the credit for that.

BEPS was trumpeted as the first major breakthrough in international taxation in a hundred years. In reality, there has been some breeching of the fortifications, but no breakthrough.  Thanks to populist ‘uprisings’ following the 2008 Financial Crisis, taxation has been under the spotlight. Transparency is the minimum required to appease the masses, and even that would probably  have fallen  apart had it not been for the American obsession with FATCA. Many mistake the noise made by the British and French legislatures over the lack of tax being paid by American multi-nationals as part of the equation. Wrong. These are unilateral acts by Governments looking after themselves – the diametric opposite of the BEPS philosophy.

The G20's greatest internationalist

The G20’s greatest internationalist

The end result looks remarkably like the Allied approach to the Second World War. Frenchman Pascal Saint-Amans, like General De Gaulle,  made a lot of noise, was overrun, but declared victory. The British plodded on alone trying to break the multi-national enemy. And then the Americans came in and did whatever they wanted. I am not sure where the Russians fit in – but let’s wait and see what surprises Putin has up his sleeve if he is invited to the G20 summit (which, otherwise, will not be the G20). Interesting tax times.

 

Cogito ergo sum

Good old British liberal education

Good old British liberal education

Arguably, the greatest contribution to society of a liberal education is perspective. ‘Dah da dah da dah. DISCUSS’ was the way it went when I was at school, as opposed to the ‘A, B, C, D, E. Tick one’ of the modern era. Today, July 14, is only significant to the vast majority of the world’s population for being the day after July 13 and the day before July 15. In France, it is a national holiday. Back in 1989, the bicentenary of the storming of the Bastille, it was Oxford educated Margaret Thatcher who pointed out in an interview with Le Monde that: ‘ ”human rights did not start with the French Revolution,” a perspective the French were not prepared for.  Fortunately for the Iron Lady, she was guillotined by her own Government the following year, before the furious French could get their act together. Earlier today, the massively anticipated sequel to Harper Lee’s ‘To Kill a Mockingbird’ hit the bookstores. The fictional superhero of my youth ( along with Clark Kent and Bruce Wayne), Atticus Finch, now turns out – in his author’s eyes – to have been a bigot. We all missed that one.

So, with the gradual movement from education to knowledge cramming, it is perhaps no surprise that the entire tax world is out on a fanatically dogmatic witchhunt, not even stopping to breathe and get the whole thing in perspective. And it is embarrassing.

I refer, of course, to the twin tax bugbears of western society, BEPS and Automatic Exchange of Information. Europe (did somebody whisper OECD?) has decided that American (did someone say ‘foreign’)  companies pay scandalously and imorally little tax in their jurisdictions, and the world’s leading economies (did someone shout ‘the entire world’?) are singlemindedly trying to sort this out (with a constant look over their shoulders to check if the Americans are going to throw a wobbler and crush the whole thing). Meanwhile, thanks to the Americans (who feel that – far from taking too much tax away from the Europeans – their taxpayers are hiding their income there),  everybody is trying to make sure that their tax residents declare all their ill-gotten gains.

He tried to take shares in somebody else

He tried to take shares in somebody else

Dogma rules. If this can be sorted out, we are told, the world will be a fairer place. Perhaps. But there are two small issues here that should have been factored in. Firstly, it is by no means clear that companies should pay tax.  While Shylock could ask, ‘If you prick us, do we not bleed?’ joint-stock companies, like Pinocchio, do not have the same luxury. Companies are a legal fiction – the Walt Disney of the business world. As they do not have feelings (an accusation often aimed at me), they cannot suffer taxation. Taxation is paid by flesh and blood people – it is the customers who pay higher prices , the shareholders who make lower profits, and the employees who receive lower income. The company just sails on regardless – and, if it dies, does not even warrant a marked grave. There has always, therefore, been a strong movement to abolish company taxes in favour of taxes on individuals – income tax, withholding tax, value added tax. Company taxes, it is argued, distort economic performance.

Secondly, while the search for the hidden treasures abroad  of individuals is highly laudable,  white man speaks with forked tongue. The latest example of Orwellian Doublespeak is last week’s British budget where non-domicile status (institutionalized tax avoidance) was, with much fanfare, marginally tweaked. Rich foreigners will still be able to enjoy the English weather for substantial periods.

While BEPS and Automatic Exchange of Information are undoubtedly an improvement on the international tax scene that has been around until now, they are not a Utopian goal resulting from deep thought and discussion. They are  the result of an ‘I want’ philosophy of the electorates of the world’s leading nations. The elimination of company tax is controversial and may be totally impractical, but it, and other ideas including a simple move to regressive VAT as the main source of revenue, should have been part of  the debate that never came. Instead, the new world tax order – like so much else in the modern world – is being led by populism. And populism – thanks to a biased, disingenuous and largely ignorant press – is becoming increasingly dogmatic. Look what happened to the French in the 1790s.

 

 

 

Unfrozen Assets

Prime Real Estate

Prime Real Estate

I think the main reason I have been cautious and conservative all my life is a particular madness I observed in the 1970s as I was on the threshold of adulthood. There was a property boom in the UK and people were making a packet buying and selling anything with a front door. One fine day, a wealthy property dealer from our neighbourhood went spectacularly bust – at that time the biggest bankruptcy in UK history. In the months that followed, news surfaced of local rent collectors, shopkeepers and assorted minnows being declared insolvent for millions that they clearly had never possessed. It transpired that a combination of recommendations and guarantees by bigger players, together with banks thirsty to expand their balance sheets, meant that many idiots went from fashionably poor to unfashionably bankrupt without enjoying the fruits of their lack of labour for even a day.

Prime Real Estate

Prime Real Estate

When the Financial Crisis hit in 2008, it was deja vu. Here were Ireland and Spain going belly-up thanks to property speculation, while the Greeks didn’t even make the effort to invest in property – their country just produced bankruptcy out of thin air. But, it was Iceland that really caught my eye. Igloos not being subject to the same rules of property bubbles as other countries, and Iceland not having Greece’s ability to mug the EU, they had to think of something else. And for a country that had little to offer in the form of blood, toil, tears and sweat – what better luftgesheft than Finance? When everybody was doing it, who would notice little Iceland? When Iceland unsurprisingly slipped under the ice, the whole world looked aghast at how it managed to get there in the first place.

Well, it appears Iceland is finally coming in from the cold. Earlier this month the Government announced that it is relaxing the capital controls its predecessor was forced to impose during the 2008 meltdown, meaning that investors with money tied up in frozen Icelandic assets will be able to pull it home, while Icelanders will be allowed to buy forex. The rub is that any foreigner owed money by the country’s bankrupt banks will either need to agree to a substantial haircut or pay a 39% tax.

Now, when you see an offer like that you start to understand why the Icelandic economy crashed. I was, in fact, already at the end of the next sentence of the article I was reading when my eyes did one of those  typewriter carriage returns, boomeranging back across the page for a second-take. What difference can it make to a foreign investor whether the bit of his money  lopped off by the Icelandic Government is a haircut or a tax? The only thing I could think of is that a haircut will invite a capital loss at home which the disappointed investor might be able to use against other foreign capital gains, while a 39% tax on a capital asset is meaningless tosh.

This nation of fishermen, fresh from fooling the world that they were bankers, seem to think they can do it again – you can fool some of the people all of the time. Now that the chips are down once more, investors should smell something fishy and freeze them out.

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