Tax Break

John Fisher, international tax consultant

Archive for the tag “International Taxation”

Saving Income Tax

Learning the dangers of offshore structures

Learning the dangers of offshore structures

Early in my tax career, in my role as stenographer, porter and punkawallah to the great and the good, I was instructed to join one of the senior partners at a meeting with Roy E. Disney’s right-hand man. The conversation was going well (I had a walk-on part taking notes and fluttering my eyelashes, or whatever pseudo secretaries were supposed to do in those days) until the partner dropped a fatal clanger. Discussing the need for substance in the international structuring of the proposed investment, he mentioned that the tax authorities did not take kindly to…wait for it…Mickey Mouse Companies. As the orchestral tumult of Fantasia’s  Sorcerer’s Apprentice banged about inside my head, I sheepishly looked up to observe the silent visitor barely controlling his taut facial muscles. “Please do not refer to Mickey in that way,” he eventually complained. “Mickey is very close to our hearts.”

Where did this Disney character hide her floppy ears?

Where did this Disney character hide her floppy ears?

I recalled that incident recently on a rare visit to a movie theatre (my cinematic repertoire over the last decade has been generally restricted to Messrs Batman, Bond and Potter in various incarnations, shapes and sizes). The occasion was the local release of “Saving Mr. Banks”, loosely based on the negotiations, over half a century ago,  between Walt Disney (uncle of the famous Roy)  and PL Travers for the film rights to Mary Poppins. History is written by the victors and this was a Walt Disney production, so I suppose, even though this was a live-action movie about the making of a live-action movie,  I should not have been surprised to see that bloody mouse coming out of the woodwork at every opportunity, not to mention Walt’s (you have to call him Walt – Mr Disney, we are comfortingly told,  was his father) repeated declaration that Mickey is family.

Rereading the first two books on which Mary Poppins was based before attending the movie, I was reminded how much children’s literature has changed during my lifetime. Although not in the same league as Noddy or Tintin, Poppins has its moments of political incorrectness. An example was the housekeeper’s objection to  the soot-encrusted Chimney Sweep (not Dick Van Dyke’s Bert – Julie Andrews’ platonic friend – who was an amalgam) grabbing her arm: “Ow! Let me go, you Hindoo!” Now, two exclamation marks in one short exclamation is unfortunate, but use of the ancient derogatory form of “Hindu” is unforgivable. Nobody would, for very good reasons, get away with that sort of thing today nor, evidently, for that matter, making disparaging comments about an oversized rodent. However, it would seem some things are still fair game. And one of them is “close to my heart”.

Mr Banks of the books is in a perpetually bad mood (the title of the film alludes to that, but I am not in the mood for spoiler alerts so prospective cinema-goers fear not); if it is not because the household gopher has brushed his bowler hat with  polish, it is because he has prepared him non-matching shoes. His biggest blow-out however is over his mislaid bag which his goofy wife locates in the study. Demanding to know who had moved it there, she replies: “You did, my dear, WHEN YOU TOOK THE INCOME TAX PAPERS OUT OF IT LAST NIGHT”. Later in the book she refers to “that AWFUL INCOME TAX”. Say no more; ignorant cow.

I must say that I do not remember many protests against Mrs Travers’s racial prejudice but, one thing is for sure,  there was not even a murmur over her subversive statements about taxation. Isn’t it bad enough that, as kids growing up, we burned with resentment over the annual  sacrifice of a whole early evening’s Children’s TV in favour of a load of boring nonsense called the Budget (in a dreaded election year that crime was committed twice)? Is it really appropriate for our children’s literature to be laced, Tea Party style,  with incitement to revolt? And what are they supposed to be revolting against (as French students have been asked many times in their history)?

Tax is an essential part of modern civilization. Tax is of the people, by the people, for the people.  Tax is no less critical to the moral fibre of 21st century society than Freedom, Democracy and Mandela. But we continue to educate our kids to write it off as bad. (Please note: tax accountants have not yet found a way to write-off taxation but I can assure you, as the consummate hypocrites we do not admit to being,  we are working on it). The time has surely come to excommunicate those who denigrate taxation. It is time for our youth to sport tee-shirts announcing: “My Friend is a Taxpayer” or “Tax is Beautiful” or, for the truly courageous, “I Believe in Safe Tax”.

When you see the whites of his eyes - shoot!

When you see the whites of his eyes – shoot!

While, thankfully,  the time came long ago for the banishment of racism and mockery of the afflicted, I want to stick my neck out and make one exception: Americans (other than Meryl Streep) trying to imitate an English accent. Such people should be pilloried until they give up or die or both. The most dreadful specimen in movie history was, of course, Dick Van Dyke’s diabolical cockney cock-up in Mary Poppins. It bothered me when I saw the movie as a 6 year-old and it still bothers me today. But, in the Disney World, there is one thing perhaps worse. Exactly 10 years ago this month, our family spent a week in Orlando. Despite the cynicism that, I am informed by friends and family alike, oozes out of my very essence (I am sure they are wrong), that was one of the most amazing weeks of my life, not to mention that of the kids. A few years previously we had been to EuroDisney in Paris. Mickey Mouse and Merlin in French? Forget your husband’s bag, Mrs Banks. Why can we never find a guillotine (or better still, an atom bomb) when we need one?

Dallas, Taxus

"The Kennedys"

“The Kennedys”

According to a study in the influential “British Medical Journal”, if you are looking for a safe profession (leaving aside Accountant or Lawyer), you would be better advised to plump for Bomb Disposal Expert or Formula 1 Racing Driver than Soap Opera Star. The BMJ informs us that characters in these B-TV sagas have three times the normal mortality rate across age groups. Taken together with the other essential ingredients of a Soap – halting scripts, multiple rambling semi-plausible plots, and the occasional totally implausible shock occurrence (remember when the entire 9th series of Dallas turned out to be a dream?) – “The Kennedys” could have easily qualified for a grant from the Soap Opera Arts Council.

With newsprint and screens currently full of the  tragic moment in Dallas  exactly 50 years ago next Friday, my unhinged thoughts drifted unwittingly to other Reality Soaps and, particularly, those of the Taxploitation Genre.

The ink is not yet dry on the OECD Base Erosion and Profit Shifting Action Plan and hurriedly drafted scripts, including those of various tax authorities, are already prophesying the impossibility of reforming the taxation of the digital economy, which is so essential. Flashbacks remind us that the whole international tax mess started after the First World War, when  the Gentlemen’s Club of Europe and America decided that taxation should follow residence – so that profits did not remain in the hands of the off-screen Colonial extras who had their hands on  the raw materials , but flowed up to the stars at centre-stage.

The public and their governments now scream that , with the onset of internet maturity,  it is time to upset the digital world order – a rare Soap moment calling for  Tax Armageddon. Surely the time has come to look more closely at where transactions are being consummated –  recognizing that data-collection should be taxable where the data is collected?  But no, it is noted that there is absolute connectivity between the digital and old  economies – if we change digital, we have to change everything – and that exclusive Gentlemen’s Club seems to be saying: “That will not do. We cannot flash the bat outside the left stump”. They prefer to carry on with the same script tweaking it over the long-term trying to achieve governments’ stated goals.

Marilyn is far left, Carlos is far right (he was, after all, from Franco's Spain)

Marilyn is far left, Carlos is far right (he was, after all, from Franco’s Spain)

This brought back memories of my favourite soap during my formative years – the low-budget, cardboard-walled “Crossroads” about a Midlands Motel, which ran without interruption from 1964 to 1988. In its early years it followed all the normal rules until, in 1968, sometime around the assassination of RFK, the scriptwriter must have had enough of writing his daily drivel. In an act of devilish inspiration, and right under the noses of the sleeping producers, he decided to marry-off the extremely “working-class” Motel waitress, Marilyn Gates, to the local vicar, Peter Hope. I can picture the scriptwriter the night before the announcement  (episodes were filmed in a single take) on a bender in his cheap hotel (motel?) room, poring over the ubiquitous Gideons’ Bible hoping for an epiphany,  hitting on the enigmatic Mary Magdalene, and the deed was done.

When the producers woke up and realized that, while evolution is the thing with Soap Scripts, this one was going to end in tears, they probably did contemplate contributing to the statistics on which that BMJ article was based. However, they had a problem. Only a few weeks previously they had killed off Carlos, the beloved Spanish Chef who died saving children from a burning Orphanage. Another cardinal rule of Soaps is – you can’t kill people off too often; (they may have killed off the scriptwriter, but he would not have been missed unless he was planning the first Miss Crossroads competition for the Christmas special.) The solution was, literally, unbelievable. With the raising of a middle-digit to their intellectually superior viewers (including 10-year-old me),  one bright evening a few months after the wedding the episode opened with an announcement: “From today, there is a new Marilyn Hope” and, in keeping with the miracles promised by her Faith,  the said Marilyn Hope appeared as a prissy, blue-stockinged, Queen’s English-speaking, Vicar’s wife…….and they all lived happily ever after (or, at least, until they were buried by budgetary cuts in 1988).

And that is what the scriptwriters of the tax world might be trying to do to their governments and  us. Cornered in a dead-end without a feasible storyline, instead of bumping off the entire cast, they may just try and dress digital taxation up in a different pair of stockings (a bit of consumer jurisdiction VAT here, a service Permanent Establishment there).

john_f__kennedyOne cold Tuesday afternoon a few years back, I stood shivering on the Grassy Knoll. It was one of the most unremarkable places I have ever made a special point of visiting. Apart from the anonymously named “Sixth Floor Museum” behind me, the only indication of what happened that terrible Friday were two metal studs in the approach road marking where the bullets hit. Whatever Kennedy was, or wasn’t, he inspired new frontiers. The Tax World could do with another JFK right now. Obama’s policy wonks and speechwriters should get to work on their laptops.

In God (Alone) We Trust

Business Card

Business Card

When the news broke last Sunday that a Boeing 737 had inexplicably missed the runway at Bali airport and ended up in the sea without, miraculously, any loss of life, I couldn’t resist a sardonic smile. In the closing pages of Swedish author Jonas Jonasson’s improbably titled “The 100-year-old man who climbed out the window and disappeared”, an elephant laden, privately chartered Boeing 747 is trying to get permission from air traffic controllers to land at Bali airport. The gist of the conversation goes like this:

“My name is Dollars, One Hundred Thousand Dollars.”

“Excuse me, what is your first name, Mr Dollars?”

“One Hundred Thousand and I want permission to land at your airport”

“Excuse me Mr Dollars. The sound is very poor. Could you be so kind as to say your first name once more?”

“My first name is Two Hundred Thousand.”

“You are most welcome to Bali, Mr Dollars”.

It does make you wonder. In fact, my knowledge of Indonesia (of which Bali is a part) is founded entirely  on the above-mentioned novel and Barack Obama’s positively embarrassing “The Audacity of Hope” in which he frighteningly bases his concept of foreign policy on his childhood experiences with his mother and autocratic stepfather in that country. What is interesting is that both authors take the existence of corruption there for granted and, in the case of Jonasson, he is clearly aware of his readers’ subconscious expectation that, in that part of the world, bribery will always be involved.

But that begs a question about the West.

Why is it that every time somebody in authority puts his hands in the till (or elsewhere) we freeze in indignation and shock, adopting the facial pose of someone in desperate need of the bathroom, and fast? Indignation has some logic to it. But why shock? Shouldn’t we expect it? Just look at the shenanigans in high places of only the last few months:

Starting with monarchies. There is the King of Spain’s son-in-law facing fraud charges (with his wife Princess  Christina being required to appear in Court). Meanwhile, there are accusations of a political slush fund that may have benefited some of the King’s highest democratically elected political servants. And then there is the widow of King Baudouin of Belgium (who shared first place with General Franco in my childhood stamp collection) who has been siphoning off part of her considerable State pension to a foundation for the benefit of her Spanish nephews so as to avoid Estate Tax.

"Who loves ya, baby?"

“Who loves ya, baby?”

Republics have not been faring any better. Berlusconi’s antics in the boardroom and the bedroom do not  need repeating here but even he is being outshone by the political heirs of the Sun King. The French establishment seems to be guillotining itself with the disclosure that  the treasurer of President Zeropopularityrating’s party invested illegally in the Cayman Islands  followed by the resignation of his Budget Minister for a similar iniquity.

Furthermore – and not because I want to be fair to the French but because I want to make a point –  if we go back a few short years, a large number of MPs, constituting  the rump of the British Parliament, were caught inflating their expenses, claiming for such necessities as the cleaning of a moat.

For the life of me, I cannot understand why intelligent, educated people in their millions are still shocked by these antics. There are simply too many of these good people to assume that they are the same poor souls who still believe in Santa Claus and saunter down to the lily pond at the end of the garden on a summer’s evening to dance with the fairies.

All this is not a cue for the God Squad to jump up and start lecturing on the debilitating effect on morality of an increasingly secular society.  They might like to reflect on the state of organized religion which has, itself,  not been having a very good press  lately. Moreover, a recent book by primatologist Frans de Waal has shown that chimpanzees display considerable moral behaviour in terms of looking after the infirm, the old and the orphaned – which should wipe any remaining  smug smile off the face of the average, intellectually stunted Holy Joe.

Anyone who can see past the Evangelist standing on the doorstep trying to sell human salvation – in fact, anybody who gets around to reading the older part of the Bible he is trying to peddle – should realize that immorality is here to stay. Instead of being surprised by it – society should  legislate for, and strictly enforce, the bits that cause the most angst.

A few months ago I wrote about a British Parliamentary broadside against Amazon, Google and Starbucks who, it was contended by British lawmakers (in between consultations with the moat cleaner), were not paying enough tax. Committee Chairman Margaret Hodge accused them of being immoral rather than illegal. This was balderdash. Apart from the fact that a company cannot be moral, intelligent or humorous because it is just a number in a government registry – how are company managers to know who the god, or gods, it is that they are required to serve – shareholders, host country government , home country government or customers?

And, while we are at it, what defines Morality in the modern Global Village? Perhaps it was prescient that the only typo ever recorded in the official King James Bible was in the 1631 edition where the 7th Commandment was rendered as “Thou shalt commit adultery”. In those days, if you committed adultery it could cost you your life (and if you committed adultery with the wife of the heir to the throne, you watched yourself being chopped up first). Nowadays, it just costs you your house and car.

"Good mornin', Mista Fisher"

“Good mornin’, Mista Fisher”

As the sun began to set on the last century,  I spent a few months working in Manhattan. On my first day in the apartment on 34th and 2nd the concierge caught me on the way out. “Mista Fisher, you gotta separate yer garbage. It’s de law Mista Fisher, it’s de law”.  I, of course, proceeded to do exactly what he said for the entire two months. Why? Was it because, I had a Green epiphany and considered it morally reprehensible to put recyclable and non-recyclable rubbish in the same bin (sorry, “can”)? You kiddin’, or somethin’? There were two reasons: I thought that, if I got caught 3 times putting the washed out remains of the Drip Brew filter  with the empty Ding Dong packets I would get life without parole; and the concierge talked and looked like Jimmy Cagney so I wasn’t taking any chances so close to the East River.

FDR was wrong when he announced at his first inauguration that “all we have to fear is fear itself”. With all the progress in the world, when it comes to enforcing the law, there is no substitute for fear. Maybe they should bring back the Rack. It might not deter corrupt high-flyers much, but it would satisfy the moral majority’s primitive urge for revenge.

Holy smoke

Translation App

Translation App

On Tuesday I was asked to review a generic letter to clients that had been “professionally” translated from Hebrew to English. Wielding my red pen with the hungry anticipation of a famished vampire, I proceeded to correct just about everything on the  page except  the spaces between the paragraphs. Not being able to resist the kind of stupid one-liner that costs me so dearly in my annual employee feedback review, I passed the sheet nonchalantly across the desk with the comment, “Apart from that, it is perfect”.

The truth is that there wasn’t a single word in the document that was technically mistranslated – it’s just  that, if words could be compared to cars,  it was like a totally fatal pile-up on a fog-covered stretch of the M1.

 I had a similar, if less violent, reaction when I read the English translation of the Pope’s resignation speech. The use of the word “convoked” in the first sentence sent me diving for my Shorter Oxford English Dictionary to discover whether this was, what one of my English teachers used to call a “lovely word, doesn’t exist”. Well, it certainly does exist and, what is more, it is a faithful translation of the original Latin “convocavi” although a better oiled translator would definitely  have gone for the more comfortable “convened”. Having finally located the original Latin text (there isn’t much call for it these days outside the convocation (good word) of cardinals who heard the speech in person) I noticed that for the term “not only…but also”  His Holiness had used ” non solum…sed etiam” rather than the more common “non modo …sed etiam”. It made me wonder whether he had gone for a word that conveyed his extreme loneliness (solus=alone) in coming to his decision – a sentiment that never made it into the English version.

“Lost in Translation” could have been a good title for a movie if Sofia Coppola hadn’t got there first (and won an Oscar in the process).

Last week France, Germany and the UK issued a joint communique to their G20 partners supporting the newly released OECD report on Base Erosion and Profit Shifting (BEPS). The report came in the wake of the growing outcry among some leading nations that they are not able to tax a big enough share of the global profits of multinational groups. Although the Americans have been slightly less vocal on this since the US is the godhead of a large proportion of those groups, the IRS has been trying to hammer Amazon recently on its profit shifting to Luxembourg – so some cooperation can be expected.

What is interesting is that this report is not actually a report. It is a framework designed to pinpoint the problems that exist. Talk is of a report in July. To this must be added the keenly anticipated OECD progress report due in April on “Transparency and Exchange of Information”, not to mention the Beneficial Ownership proposed Model Treaty update from October 2012. Then, of course, there is the Daddy of them all  – Working Party No 6, which sounds like something out of Orwell’s 1984, that has been spending somebody’s (the taxpayer’s?) money for several years now, working on the tax treatment of “Intangibles”, the easy mobility of which is one of the tax world’s core evils. Although an update was only expected in late 2013, the Working Party  shocked the world (you must have felt it) when it gave a progress report last June. There might even, one day, be a final report (shock, horror).

But one thing is almost for sure – whenever all these committees, working parties and convocations report – NOTHING WILL BE ANY CLEARER. Why? Because they will be written with the usual lack of clarity that comes from culturally diverse  groups trying to crawl their way through the intricacies of unshared language. And the really sad thing is that everyone (and that includes people who don’t even know how to fill in a tax return) knows what really needs to be done to get the international tax system straight.

What governments would like to do to international tax planning

What governments would like to do to international tax planning

There is a solution to the reams of gobbledegook. It came to me a few years ago when the family was vacationing in Italy. Arriving in Firenze (Florence to beer swilling Brits), I attempted to follow the Italian English instructions from the landlords of the apartment we were renting in the old city explaining how to drive in and deposit our suitcases. If you have never been to Firenze (book a ticket NOW) you may not know that you are supposed to park outside the old city precincts in car parks that fleece you beyond anything you imagined even the Italians were capable of. Approaching the city walls I noticed one of those wordless round red signs with a horizontal white band through the middle. Suggesting sheepishly to my wife that this was, perhaps, not a great idea she insisted – on the basis of the landlords’  instructions –  that we continue. Two minutes later, having braved a couple of narrow one-way streets and unavoidably driven back out through the city wall, I found myself facing the same sign again. Try again, I was instructed. The third time I revolted, made for a car park and bundled everybody into a taxi. A few months later, true to their motto “We try harder”, Avis made sure I received two identical tickets from the local Cabinieri for €90 apiece.

The point is that we all understand symbols and we don’t understand Italian English. It is time for international bodies like the OECD to abandon all these reports and revert to hieroglyphics and numbers. Instead of reeling off thousands of pages of draft, interim draft, final draft, and really final draft reports – they should produce powerpoint presentations with diagrams based on internationally agreed symbols and icons, accompanied by multiple numerical examples of how the thing the diagram is representing is supposed to work. I actually remember the Americans putting out a Treasury Paper on withholding tax from  software payments in the 1990s which, while not adopting the powerpoint approach, used around 20 examples which made the whole thing totally clear even to someone like me who is not an American speaker.

The next President or Pope?

The next President or Pope?

There is wide belief that Pope Benedict has earned a long and happy retirement. As regards his successor, the older among you will remember the unfortunate pope whose heart gave out, or – if you are into conspiracy theories – was given out, a month after his ascension to the papacy in 1978. He decided to take the name of his two predecessors – John XXIII and Paul VI – becoming Pope John Paul I. His celebrity successor, presumably out of respect for his early demise, named himself John Paul II.  If the new guy wants to stay in the headlines he might take a leaf out of John Paul I’s  book and name himself after his five predecessors –  Pope  John Paul John Paul John Paul Benedict I. A juggernaut of a name like that  would survive any language crash.

Is the clock ticking for Switzerland?



Towards the end of 2010, in one of his last interviews, John F Kennedy’s iconic speechwriter, Ted Sorensen, shared a previously unpublicized titbit concerning the 1960 Presidential Election. At 3am on Election Night, Richard Nixon gave a not-exactly- concession speech (he officially conceded the following afternoon). Watching the event on TV, Kennedy turned to Sorensen and said, with a touch of  sarcasm: “That’s Nixon. No Class”.

Ever since I learnt to think independently (which is a lot more recently than I care to admit) the word “Class” has given me trouble. It is no coincidence that the only acceptable opposite of “Class” is “No Class” often modified by one of several expletives. Despite gargantuan efforts by modern lexicographers to come up with a good definition, the Shorter OED lists 7 homonyms for the word, none of which have anything to do with what Kennedy was talking about.

Part of the problem has been that the term has  been a moving target for so long. While a dinner jacketed Sean Connery’s request for a certain drink “shaken not stirred” may have been the height of class (aka elegance) 50 years ago, nowadays every western 17-year-old lying face down in the street can reel off a catalogue of cocktails and chasers.

However, one thing that all tax practitioners would agree  is that , whatever “Class” is, the Swiss have it.

She was a Grimaldi

She was a Grimaldi

Throughout the 20th century and into the 21st, Switzerland has been the ultimate tax haven for the discerning company or individual. The Rolls Royce Phantom II of the international tax avoidance (NEVER evasion) industry. Not for them the vulgarity of Netherland Antilles or British Virgin Islands. While Monaco may offer the attractions of the Grand Prix, Monte Carlo’s Casino and the glamorous House of Grimaldi, Switzerland offers supreme natural beauty, elegant manners and the ever-so sacred discretion of professionals you would trust in a harem.

Even as it was  mauled by the Americans for aiding and abetting tax dodgers, the country kept its head high and suffered no apparent reputational damage (after all, that is what everyone knows they have always done. It was the Americans who came over as brash). However, recently it has started to look as if paradise could be lost, not because of external pressures (which have been there forever) but, rather, internal ones. The Swiss (or to be more precise 103,000 of them who signed a recent petition) have discovered they have a social conscience – and, with that, there (potentially) goes the tax haven neighbourhood.

Riled by the cosy tax arrangements of such class acts as  Phil “A groovy kind of love”  Collins and Tina “I’m your private dancer” Turner, a socialist  group is forcing a referendum on Switzerland’s Federal lump-sum taxation regime. This move, itself, comes in the wake of the discontinuance of the regime by several Cantons.

Switzerland has been operating some form of lump-sum taxation for 150 years. The basic idea is that foreign High Net Worth individuals wanting to establish a tax residency of convenience in Switzerland and not planning working or doing business there, can negotiate a level of tax ostensibly based on their cost of living. This has traditionally replaced income tax and wealth tax.

Recognizing the winds of change in public attitudes the Federal Government issued a draft law in late September amending the existing regime. The reaction was a petition organized by a group of lefties (I always thought a radical Swiss was someone who took his jacket off at dinner- but I was clearly wrong) that will ensure a national vote within 2 to 3 years with the aim of scrapping the regime altogether. They, like the Cantons before them, object to the idea of anyone paying tax on an expenses basis.

The proposed changes in the law were, to the plodding residents of progressive taxpaying countries like me, quite minor  although quite possibly volcanic in  Swiss terms (though not volcanic enough for those culturally defective fellow travelers  who have betrayed all that Switzerland stands for).   Currently, lump-sum taxation is available to foreigners and Swiss citizens who have been abroad for over 10 years (the latter only being eligible to one year of the special regime). Under the draft law, Swiss citizens are eliminated (not literally).

Setting a minimum for lump-sum taxation was a moral imperative

Setting a minimum for lump-sum taxation was a moral imperative

The draft law  clarifies that the tax is based on the cost of living in Switzerland and abroad, whereas it had been previously unclear as to whether only Switzerland was included. This has to be one of the best pieces of tax haven doublespeak in decades and, if they were not Swiss, I would congratulate them on a good joke, well told.  The cost of living on which the tax is based bears no relation to the cost of living in Switzerland, abroad or, for that matter, in outer space. It is, in practice, calculated mechanically as a multiplier (currently 5, proposed 7) of the rent paid by the taxpayer or the rental value of an owned home. The proposed law does for the first time  include a minimum CHF 400,000 (around $425,000) in case any HNW individual was saving tax by shacking up in a youth hostel.

The question on everybody’s lips is “What will fall next?”. Can we expect Principal and Mixed Company rulings to be toppled? Will IP be returned home? Will Stand-up comedians miraculously stand up on Lake Geneva?

What a spoilsport

What a spoil sport

But the big question is whether the country can still lay claim to  “Class”, which has always been the backdrop to its discrete financial industry,  when it publicly expresses self-doubt and is inhabited by at least 103,000 whingeing reds disturbing its rigid norms? For what it is worth, my take on “Class” is that it is a cheap veneer of elegant superiority that has gradually been chipped away by all those inconvenient social pioneers- totally lacking in sartorial elegance -variously disguised in suffragettes’ skirts, cloth caps, loin-cloths, bushy beards and open sandals who, for well over a century, have been breaking down the walls of inequality in society. God bless them. Even James Bond, the product of a Swiss mother and Scottish father, is a little rough round the edges in his latest incarnation. Perhaps Switzerland is finally coming down from the mountain.

Olympic spirit lost

It didn’t say “Wet”

My trip to New York cancelled last week courtesy of Superstorm Sandy, I decided to take advantage of the hour before anyone realized my  calendar was empty to clear my desk. Forgetting the utterly ignored disposable cup of coffee nestling under a sheet of foolscap, I watched in helpless horror as it tipped drunkenly on its side and lazily cast forth its contents over my diary and neighbouring assorted papers. My barely legible handwriting disappeared as the ink, dissolving into the coffee, was dispersed across the open page. Taking a leaf out of the book of the intrepid New Yorkers, by midday I had a spanking new diary and only the merest hint of brown on numerous documents newly piled at the edge of the desk.

The experience took me back 40 years to the summer of 1972 when we were just finishing 8th Grade (in England it was called the 3rd Form which was a bit confusing since we had already had one of those several years earlier). Our Form Master was Severus Snape minus the charm with whom one messed at one’s peril. Of course, as healthily idiotic teenage grunts we messed at our peril – but we all knew our limits. All of us, that is, excluding one. There is one in every class. A totally incorrigible youth with no academic aspirations who is programmed to kick back at all cost against authority. Civilly disobedient – Mahatma Gandhi without a cause. Anarchic without knowing the meaning of the word. Angry young man who wasn’t even angry. If we were told to write the address on our report envelopes in the centre, he wrote it in the top left-hand corner. If we were told to sit down, he stood up. Told to write in pencil, he wrote in ink. You get the picture.

We “knew” our limits

In those days part of the daily ritual was the redundant task of calling the register to corroborate the evident  fact that, while  so-and-so’s desk was clearly empty, he (we were all He’s) was not hiding somewhere else in the room. Each morning the dreaded Commandant would labour through the 31 names and mark squares on that term’s page with an alternating diagonal pencil-mark producing, over time, a herring-bone effect that was quite aesthetic. Trusting in his absolute power over us, the register was left in his unlocked desk – a Holy Ark that we assumed, if touched, meant  instant death.

Then came that fateful morning when our revered leader marched to his desk, removed the register, opened it, fell totally silent, shook with rage and then sat down with his head buried in his hands. Carnage. Somebody (guess who) had poured an entire bottle of Parker Quink over the sacred tome. I don’t remember precisely what happened next but, despite the temptation to embellish the story, I am pretty sure there was no blood and there was definitely no ambulance.

Why am I writing all this? Because the European Union appears these days increasingly like a class of juveniles. And no prizes for guessing the incorrigible country. They were at it again last week.

Last Sunday, the editor of an investigative magazine published a list of over 2000 names of account holders in the Geneva branch of HSBC bank and was promptly arrested for breaching privacy laws. What is more, in a show of absolute legal efficiency, he was brought to trial on Thursday and, equally promptly, acquitted of the charges against him.

This all sounds quite impressive, if a waste of taxpayers money, other than for one thing – all the actors in this little play were Greek. The list, transferred to the Greek Government two years ago by the then French Finance Minister and now Head of the IMF, ostensibly pointed to wealthy Greeks who may be running a sideline in tax evasion. Somebody (the hot potato is now passing between former government ministers) stuck it in a drawer and “forgot” about it. Meanwhile, as I noted on this blog back in February there are (or, at least, were) over 165,000 (one hundred and sixty-five thousand)  cases awaiting trial in the Greek court system. But they still managed to get this guy up in front of the Beak within 4 days.

What privacy?

I am not a lawyer and I do not know how heinous it is to breach someone’s privacy when it is in the public interest (if I am not mistaken Woodward and Bernstein did something similar 40 years ago that rather inconveniently brought down the President of the United States – and nobody tried to put them in the Electric Chair). However, even I know that there is something absolutely heinous with the government of a country that is struggling on the ropes with its budget deficit, not pursuing tax evaders. The fact that this case was taken to trial so fast is not heinous – it is just a sign of how morally bankrupt and obviously beyond the pale Greece is. I had goose pimples when the current Greek Front Man, Antonis Samaras was praised by Angela Merkel in Berlin. I know  that a Greek exit from the Euro would not be simple for the creditor nations and that fact is heavily influencing Germany’s approach. But sometimes  the school principal has to realise that it is not enough to make the errant youth write a thousand times “I must not tell lies in class” or “I must keep my promises”. If he proves himself totally incorrigible he needs to be expelled.

The Greeks like to keep telling us that they are the cradle of modern civilization and also the inspiration for the world’s greatest sporting event – the Olympics. Agreed. And what is the greatest problem facing competitive sport in the 21st century? Doping. Greek governments have been “enhancing” their statistics and breaking their promises, rather than records,  for years.

It is clearly time to expel Greece from the Eurozone and disqualify it, for a period of several years, from the benefits of EU membership.

Left luggage

Hitler or just the bloody tyrant next door?

It was during the Bosnian War that the BBC’s Martin Bell and his colleagues developed the concept of Journalism of Attachment.  While war correspondents stretching back  to William Howard Russell a century and a half earlier had reported the good and evil of war, it was this new generation that took sides and, effectively, became unarmed combatants on behalf of  the chosen good guys.

I am, personally, not entirely comfortable with this approach since the arguments surrounding war are often complex. The future of world peace would be better served by presenting the stories dispassionately and letting the public decide. Having said that, at least the underlying morality of each situation is normative.  Judeo-Christian morality, that has finally evolved into what Judeo-Christian morality was supposed to be before nasty little men spent thousands of years distorting it beyond recognition, has little difficulty identifying the rights and wrongs of war and conflict.

But when Journalism of Attachment reached the battlefield of taxation  last week,  moral compasses went spinning out of control.

For many of you, this will be the first sighting of the Belgian ruler

The French left-leaning newspaper Liberation ran a story about Bernard Arnault, the founder of LVMH the luxury goods group who happens to be France’s richest dude. It transpired that he had applied for Belgian nationality  to add to the French one that came free of charge with his birth certificate. Apart from the affront to Liberation’s French sensibilities that one of France’s favourite sons wants to be associated with a country that many French view as nothing more than a playground for European wars incapable even of sporting its own King (Whateverhisname  is King of the Belgians – not Belgium), they smelt a tax exile in the making.

Reading the headline, I dusted off my 40 year old French textbooks to try and work out the meaning, but to no avail. The reason for this became clearer when the Economist informed its readers (I am one of them) that, allowing for poetic  licence, it meant “Sod off, you rich bastard”. Mr Arnault is using some of what defines him as France’s wealthiest individual to sue Liberation out of existence.

Now there is nothing strange in a newspaper having a clear political philosophy and taking a stand against anyone whose actions diverge from that philosophy. Newspapers have, after all, been recognized since as far back as the 18th century as the “Fourth Estate”  in  parliamentary (or, more generally, democratic) systems.

What is worrying in the case of Liberation is that the self-righteous outburst is not just the statement of an opinion, it is a critical (and probably the only) component in ensuring the success of the Government’s policy. Liberation has become a combatant in Francois Hollande’s ill-advised war on the rich.

The French budget, unveiled last Friday, included, as expected. a provision taxing earners of over €1 million at the incredibly punitive rate of 75% – put another way, it is telling top executives to work for the Treasury who will , in turn, give them pocket money. This was a significant Hollande campaign pledge along with other  Disneylike  fantasies . The concept is completely unworkable because France is unable to impose a meaningful exit tax on individuals escaping to other EU countries and some of those, especially Britain, have remarkably cosy tax regimes for tax residents who are not domiciled there. The only way to stop a brain-drain is to use moral pressure. Since modern governments are not good at the morality thing  (politicians are not high on the international ethics league table) and France’s dominant Catholic Church is having a bit of a moral crisis of its own, it falls on left-obsessed journals like Liberation to do the Government’s bidding. The big problem is that the moral issue here is anything but normative – there are widely differing views under the circumstances as to whether there is anything wrong with Mr Arnault leaving. Indeed,  Freedom of Movement is one of the EU’s central freedoms.

Hollande has been at pains to paint himself as Mr Normal after 5 years of Sarkozy who, it is implied, was abnormal. What the president does not seem to comprendez-vous is that, while France may be pleased to have a leader who LOOKS like a bank clerk , they do not want a leader who THINKS like a bank clerk. They like their presidents to be intelligent. Even a bit foxy.

The French President reading his watch strap

Mr Hollande seems to have had sufficient intelligence to restrict the tax hike to 2 years, but that could still be a critical 24 months when France is trying to get back on its feet. Top executives will delay coming to France (if they come at all) and some of those already there will do their utmost to leave – even if only for a few years. One weapon the French do have in their armory is their language. While monolingual Americans can strut the planet asking for a Big Mac and Fries everywhere they go, French who want to venture beyond Belgium, Luxembourg, Monaco and select bits of Switzerland without resorting to their phrase books will need to head for such desirable locations as Democratic Republic of Congo and Burkina-Faso.


Perhaps the biggest irony in this story is that Bernard Arnault, as founder of LVMH, makes some of the best luggage in the world. Just as nations  rarely amass weapons for peaceful purposes, would  it be so strange if Mr Arnault were to consider using some of his suitcases for his personal use? In the meantime he is reported to have categorically denied that he is considering a change of fiscal residence.

Risks of the import/export/import business

The crooks used to die laughing

Back in the sixties when my all-time superhero,  Batman,  used to dress like he was going to a neighbourhood Halloween party, actors Adam West and Burt Ward would issue warnings to stupid children not to try any of their stunts at home. That was sound advice.

While they had the full attention of the little weirdos they might also have told them that, when they grow up, they shouldn’t try crime. Because, while stupid people might get a real kick (and “pow” and “splatt”) out of crime, when they get caught (and stupid people who think they can swing across skyscrapers with capes catching between their legs DO get caught) it really messes up their social life.

I reckon it is precisely these sorts of wackos who  go in for VAT fraud. VAT fraud is very tempting. As will be seen from my “VAT Fraud for Dummies” below, it carries the very real advantages over regular aggravated burglary of not involving physical violence and offering theoretically unlimited gains.

It’s a dog’s life sentence

The problem is that when you get caught, as happened to a gang in England recently, the judge tends to get enthusiastic when it comes to sentencing. One genius  copped a 17 year sentence last month. For any Americans reading this, British custodial sentences compare with American ones like dog lives compare with human ones – so for 17 years read 119 years (and for VAT read an indirect regressive tax designed to fall on final consumers and hated by every Yank who hates Barack Obama).

The most popular form of VAT fraud operates best in the European Union. This is mainly because the Europeans, as a matter of policy, trust each other. They trust the Greeks, the Italians and the Spanish just as much as they trust the Germans and the French – and that is official.

In describing “Carousel” fraud I will actively omit a few essential steps so that, just in case some fat con sunning himself next to a pool on the Costa Del Sol with a cocktail in one hand and his computer in the other is reading this, he will NOT be able to commit the crime of the century (and then get caught).

It starts in, say, France where a member of the syndicate (you need a lot of goons for this game which increases the risk of someone singing) exports mobile phones to Britain. It is almost always mobile phones or similar devices although carbon credits have recently joined the list. The French exporter does not charge VAT because, as an export sale, it is subject to zero rate VAT. In Britain – where VAT is not charged at the port because the British and French are in bed together in the EU lovefest – the VAT registered purchasing company  on-sells the goods with a profit to another British VAT registered company charging whatever rate of VAT Britain’s coalition government is charging that month (for VAT fraudsters – the higher the better – so bring it on, Dave). The first British company then conveniently forgets to pass over the VAT to the UK authorities and ultimately “disappears” with the VAT it has received from the next company which is its accomplice. So far, apart from breaking the law, nobody is better off. From here on, depending on the level of “sophistication’ of the perpetrators the goods may now pass through a number of “legitimate” companies in the UK charging and reclaiming VAT until they reach the final UK company that makes it all worthwhile (until they get caught). That company exports the goods to France issuing a zero rate VAT invoice (“There’s a hole in m’ bucket, dear Liza, dear Liza..”). Under VAT law, the exporter can now reclaim the VAT it paid to the company it purchased the goods from. The final upshot is that the first UK company has disappeared with cash supplied by the syndicate but ultimately “refunded” by the British government. Best of all, the whole process can start again with the French company exporting to the UK – so the same stock of goods can be sold several times and multiples of the VAT amounts “lifted”.

In the early days the tricksters used to, at least, play the game. There was a stock of mobile phones that moved around the market. Then somebody woke up to the fact that, unless you were really unlucky and got hit with an audit, nobody ever needed to see the goods – but to be on the safe side they packed up boxes in warehouses with bricks and a layer of phones at the top. Later, it appears that even the cost of the bricks and their transport between companies bothered them so many did away with the goods altogether.

You can’t put a round peg in a square hole

This is nicely reflected in how two such frauds were blown in recent years. A while back HMRC did an audit on a stock of mobile phones in England and discovered that their chargers did not have British square-pinned plugs and were hence unsellable in England. More recently, a case was uncovered because the invoices were for models of mobile phones that, due to a manufacturer’s delay, had not yet reached world markets. As I said above, these are the same stupid morons Batman and Robin were talking to.

You will be pleased to know, however, that the great bureaucracy, the EU, has not stayed silent. Several years into this mess (it is estimated that VAT fraud runs into the billions) the EU Commission  finally proposed two weeks ago that, for a limited period only, certain very specific categories of goods (including mobile phones) should be accounted for using the “reverse charge mechanism. This is a method whereby, broadly, VAT is not charged by the seller but is instead accounted for by the purchaser until the final sale to the consumer.

Could somebody tell her that she is supposed to be DOING the frisking?

This reminds me of  US airport security since 9/11. Every time I take my shoes off in a US airport so that they can check for explosives similar to those once concealed by a British citizen boarding a flight, I think of two things. Firstly, the only deadly thing about my shoes is the odour. Secondly, that there is a terrorist who has just walked through security with a cleverly hidden device chuckling to himself about the stupidity of Homeland Security in thinking  he would try the same schtick twice.

But VAT fraudsters are not terrorists with an ideology and a mission. They are greedy fools most of whom are lucky to be less stupid than the European bureaucrats sent to stop them.

Rocket tax

Where is the Higgs Boson when you need it?

At the dawn of my career when I would flit from audit client to audit client, red and green pens at the ready, every accounting department would resonate at least once each day to the gravelly voice of Bonnie Tyler singing  “Every now and then I fall apart”.

Well, last week scientists finally proved (almost) that she was talking rubbish and people and things and the universe don’t fall apart. This is  because of something called the Higgs Boson. What really got up my nose were  all those goofy scientists, whose parents were too tight to pay for orthodontic treatment, coming down off Mount Olympus to explain to us mere mortals the significance of the discovery of the “God Particle” in a multitude of idiots guides, guides for dummies, table-tennis balls on trays of sugar and impossible cartoons.

Who, in heaven’s name, do these physicists think they are? It occurred to me that I should return the compliment, so if any scientists read this blog – this post is meant for you.

The cost to the American taxpayer was $170 billion.

Everybody knows that taxation is rocket science. It is full of equations and graphs that mean nothing to the scientist in the street but make people with doctorates in taxation feel that they have not wasted their lives.

The European Union is currently facing a major crisis among the countries that make up the Eurozone. As I have pointed out  in previous posts, the only way the Euro has a future is if the countries achieve fiscal unity, a significant level of political unity and there is cultural convergence. Following negotiations last week, the first two are looking increasingly likely in the medium term – but nobody is talking about the last. This is complex stuff and invites a plethora of  courses in Euro for Dummies. To try and make it simple, I will use the analogy of the Higgs Boson to explain.

It is no coincidence that the countries causing Euro problems are predominantly in Southern Europe (Greece, Spain, Italy, Portugal, Cyprus – Ireland is a special case). It is a fact of life that the weather around the Mediterranean is a lot more clement than in the North. There is incontrovertible empirical evidence to show that when the weather is good and you have a Mediterranean coast down the road, there is a desire to spend less hours in the office. The incontrovertible empirical evidence stems from my experience of having spent half of my life so far (hopefully only a half-life) in the smog of London and the other half with a view of the Mediterranean from my office window.

No escape – 24/7

As mentioned in my last post there is a widespread belief among tax professionals in “Tax Neutrality” – that tax should not affect the allocation of economic resources. One of the many divergences from this rule is the tax treatment of leisure. When people’s work income is taxed their desire to work diminishes and their desire for leisure increases. Ever since Corlett and Hague (1953) it has been recognized that, to rectify this disequilibrium, leisure should be taxed. However, since governments cannot tax something intangible, they should tax leisure “complements” while, possibly, offering tax relief for tax substitutes.

Getting difficult? Let’s shoot over to the Higgs Boson. Scientists have known for eons that atoms are made up of electrons and a nucleus. The nucleus is made up of protons and neutrons which, themselves are made up of quarks and lots of other bits and pieces. But it was not clear what gave all these particles mass – in other words what kept everything together. Peter Higgs (and others) developed a theory in 1964 that the missing ingredient was an invisible particle of force which came to be called the Higgs Boson. As particles went flying madly around they collided with the Higgs Field (made up of Higgs Bosons) which permeates the whole universe. Depending on the nature of the particles these were slowed down at various rates and success by the Higgs Bosons. Some particles, such as photons, are so aerodynamic, that they shoot through the Higgs field at the speed of light. The existence of the Higgs Boson was (almost) proven this week by crashing protons head-on in the 27km Large Hadron Collider spanning the Swiss-French border near Geneva.

Southern European compromise?

Now let’s imagine that the citizens of the Eurozone are particles and that tax is the Higgs Field. The workers of Northern Europe are slowed down by taxation, making them more interested in leisure but it takes such effort and money to create meaningful leisure in most of the miserable months of the year that they are not slowed down significantly. The workers of  the Mediterranean Basin, on the other hand, are slowed down totally by the tax because their leisure in outdoor activities such as the beach and  barbeques at the back of the house, is cheap. 

It follows, therefore, that for the Eurozone to survive – through, among other things, increased productivity in Southern Europe – leisure needs to be taxed. The way to achieve that is by increasing consumption taxes (VAT) and other charges on the products that complement cheap leisure. Examples would be charging for using beaches, banning outdoor cooking on weekdays, increased VAT on swimsuits (wouldn’t help much in parts of Greece) as well as deodorant (which would encourage people to stay in air-conditioned offices).

Sounds pretty horrible. Agreed. The alternative would be for the Southern European populations to behave responsibly. The prognosis is not good. It would require a quantum leap in behavioural patterns. In the meantime the Eurozone crisis is a case of an irresistible force (Germany) meeting an immovable object (Southern Europe).

The Lord giveth and the Government taketh away

Luxembourg has won the Eurovision Song Contest an incredible 5 times - only twice less than regional superpower Ireland

In recent months, both the Obama Administration and Republican Congressional leaders have suggested that tax deductions for charitable donations should, in certain circumstances, be curbed in the future – although, in keeping with all things Campaign 2012,  the facts are  a bit thin on the ground.

Frankly, I did not give this particular tax break much thought until a wake up call last Tuesday morning.  Not literally – although I was in one of those ubiquitous hotel rooms that could be absolutely anywhere in the world if not for the single distinguishing feature of the shape of its  electrical sockets.  Having arrived late the previous night in Luxembourg – western Europe’s broom cupboard  that could probably be conquered by a posse of Belgian traffic wardens en route to a jolly in the French Alps – the only bright moment so far had been stumbling upon Mary Nightingale, the 21st century thinking man’s crumpet, anchoring ITV1’s News at Ten among a Babel of more than seventy  channels.

Who invited him?

Rising early – as is my custom – and with nothing else to do because this was Luxembourg, I decided to take a look out of the window at the city (for all I know, the horizon beyond the end of the car park was already Germany). As I opened the  curtain I was struck by the beauty of the sunrise and, indeed, stood rooted to the spot for some time. Then I got to thinking about the last time I had watched a sunrise and the result was rather depressing.

Here I was in a foreign country (well, not literally a country – but it was foreign), and my reality was that  I had just  rolled off an airplane (albeit propeller driven) into a taxi into a hotel lobby into a hotel bedroom into and out of a hotel bed; and what now awaited me was rolling into another taxi into an ubiquitous meeting room (the electrical sockets tend to be hidden so you are really lost) into yet another taxi into another aircraft seat.  I had done the same thing ten days earlier – for Luxembourg read Netherlands. You get the picture.

Meanwhile, back home, the sun rises, the sun sets, it rains, there is a heatwave and I don’t even notice – driving early to the office, sitting with the sun-blinds down because I seldom get round to rolling them up. In short, standing there, staring out of the window, I realized I was living in a bubble and had lost touch with the world.

But it is not only me who has a problem. Western society may have  lost touch with itself.

Keeping it personal

At the start of the financial crisis, in 2008, the soon-to-retire Archbishop of Canterbury Dr Rowan Williams wrote a remarkable article in the Spectator in which he pointed to the idolatrous qualities of the financial markets and bemoaned the loss of the face-to-face element of trust in a credit transaction. The financial world had become so complex with so many derivative elements between the lending and borrowing of funds that the markets were deemed to have a life of their own and individuals were isolated lacking control over their own social destiny. The corollary of this may be summarized in a quote of Michael Jordan  “There is no “I” in team but there is in win” – the individual is isolated and the collective is lost.

Which brings me to tax deductions on charitable donations.

Income taxes finance the collective requirements of the nation as a whole and governments cannot possibly personalize the destination of taxes paid. Although no right minded person in the twenty first century would suggest that we should go back to a welfare system based entirely on the generosity of individuals and tithes – governments are much better at collecting the amounts needed for collective social action- there is most definitely a place in modern society for charitable institutions. Governments the world over have proved inept at running most things (other than their chauffer driven cars). In recent years evermore public services in the western world  have been privatised or, while funded by the government, operated by private bodies. There is massive room for charitable institutions to play a part particularly in the area of social welfare and while they may be eligible for government funding, there is a twofold advantage in encouraging individual “investment” : the donors vote with their feet if they perceive a breach of trust; and the system encourages genuine empathy.

He preferred giving charity to paying taxes

Despite the rants of some American fundamentalists that taxes crowd out charity, the marginal propensity to donate is a function of many things and the argument is totally spurious. I believe that the tax deductibility of donations to “‘legitimate” causes – and all would agree that   President Obama or a President Romney should curb abuses – has more to do with the effect on society than economics. It reminds people, albeit inversely, that there is a connection between taxes and the social collective  –  by showing that the government is prepared to pass up on its legitimate right to revenue in favour of private funding.

At the end of this week the two great faiths that underpin western civilization celebrate (not coincidentally) major festivals. Each, in its own way, provides the chance to reconnect with the community. In increasingly sceptical societies participation in these festivals is just as much an opportunity to affirm Belief in Mankind as Belief in God.

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