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Archive for the tag “OECD”

There is an i in America

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

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

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

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

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

Doing it the people’s way

BESTPIX  U.S. President Barack Obama Visits Ireland

‘You’re not drunk, if you can lie on the floor without holding on.’ Dean Martin’s witticism has haunted me over the last couple of years as I have watched the impending self-destruction of the country of my birth (Brexit, the inevitability of a future Corbyn government), the temporary set-back to the United States (The Donald, the quack Republican leadership), and the reckless election of a National Assembly of Jeanny-come-latelys in France to rubber-stamp a completely untried new president. The world is becoming totally sozzled (heaven knows what is going to happen in the German and Italian elections) – and the tipple is the obsessive thirst of the mob for raw ‘knowledge’ that is used and abused to satisfy a primeval urge to thump those who thought they were in power.

It is no surprise that the parallel tax world is not immune to this troubling phenomenon.

Back in the good old days (four years ago, to be precise), when the British had a stable government and the Americans had a president who could string two words together without having to resort to ‘great’, the G20 of (then) sane countries instructed the sane OECD to come up with a sane framework for combatting tax avoidance and evasion, while individual members came up with a few ideas of their own. This call to action came in the wake of disclosures of perceived unsavory international profit shifting by certain multi-nationals. BEPS Action 13, dealing with Transfer Pricing, and the Automatic Exchange of Information had one thing in common – information was to be exchanged discretely between the tax arms of governments who would give it their expert attention.

Even then, there was a small breach in the wall of discrete sanity– Cameron decided on a Beneficial Ownership Register OPEN TO THE PUBLIC. It has been downhill ever since.

The EU Parliament – about which Kipling might have said: ‘Power without responsibility: the prerogative of the harlot throughout the ages’ – this month legislated for PUBLIC AVAILABILITY of multinationals’ country-by-country transfer pricing reporting, as well as recently delivering on Cameron’s dream of an open Beneficial Ownership Register.

If you are not a tax specialist, this may all seem eminently sensible. Make public as much information as possible, and then use the public sphere to bash the avoiders and evaders to ensure that everyone pays their fair share of tax. You are in good company – Brexit, Trump, Corbyn and Republique-En-Marche seem eminently sensible to large swathes of the populations of three of the most advanced nations on Planet Earth. But, my hunch is that most of the discerning people reading this don’t think much of the large swathes.

There is a fundamental problem here. Feeding the mob with incomplete information, or information they are not programmed to fully analyze, will create distortions that are bound to affect the efficiency of the markets, and lead to loss of privacy in totally legitimate situations. In short, public, populist, semi-informed opinion will almost certainly get it wrong. Is tax planning automatically wrong, even when it (legally) irons out patent errors in half-baked legislation? Do a Scandanavian’s potential in-laws need to know how much money he has when planning a wedding? Is hiding ownership from public view undesirable in countries where ‘kidnapper’ is a school leaver’s career opportunity? Far better to leave it to the regulatory authorities (tax or banking) of the world’s nations to share and compute the information, and do the work of their masters, the representative governments. It is in the interest of each state to ensure they receive their fair share of revenues, while clamping down on money-laundering. Can Mob Rule beat that?

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Alexander Pope said: ‘A little knowledge is a dangerous thing’, Dean Martin’s Ratpack colleague sang: ‘I planned each charted course; Each careful step along the byway.’ The world could do worse than heed the words of both gentlemen.

Celebrity Squares

1101500102_400Adolf Hitler is, for me, ancient history, while Churchill is almost pinchable. Why the distinction regarding two implacable foes, the height of whose infamy and fame coincided exactly? It is simply because, by the time I was born, Hitler had been dead for over a decade, while I remember Churchill’s funeral,  50 years ago next week, vividly. Hitler was in black-and-white. Churchill was in colour.

We tend to think back on our childhood as steady-state. I was 10 years old when Colour TV came to Britain and  have always thought of it as a major revolution in British life. In fact, although the BBC had started broadcasting in 1936, few homes had TVs until around 15 years before Colour hit the living room. The story of the last hundred and fifty years has been one of continuous change.

Change has been as true of Celebrity as of any other field. Although the early twentieth century brought images of mute silver-screen stars to the world’s movie theatres, it was Charles Lindbergh who, thanks to his groundbreaking transatlantic flight in 1927, was the first true international celebrity. World leaders were not seriously heard until the 1930s, so that, when the British people had the lion’s heart in the dark days of 1940, Churchill’s roar was quite a novelty. It wasn’t surprising that the Old Man was crowned Time Magazine’s Man of the Half-Century in 1950 (he was beaten for the full century by Einstein), or that he was later voted, almost by acclamation, as the Greatest Englishman, whatever that may mean.

High Flyer

High Flyer

Through the second half of the twentieth  century, celebrity had two significant branches – entertainment and glitzy wealth on the one hand, and politics on the other. If you were not an embarrassing extrovert or a politician, you could expect to live your life in blissful anonymity. Then came the Information Revolution. Everybody was out there with the potential to reach the world – even if the world wasn’t really that interested in being reached by most of them. But who cared? It was cheap and worth a go.

Which brings me to my point. I am a tax advisor. I am, despite what it says in the sub-headline to this blog, boring. Tax advice is something to be practiced behind closed doors by consenting adults. Should I ever become a celebrity, it will not (or at least, should not) be because I dispense advice about the laws and practices of taxation.

But, it appears, the times they are a’changing. After the OECD Centre for Tax Policy and Administration aired its maiden internet TV broadcast last year, its head – the drop-dead gorgeous Pascal Saint-Amans – has now been declared Person of the Year by none other than Tax Notes International (which you will be forgiven for never having heard of). In a wide-ranging interview on the progress of the world-famous BEPS project, he declares that he is ‘the luckiest person in the tax world’. Now, go steady there, Pascal. A tax attorney who pocketed a $10 million success fee might argue that you are in second place. We know you are an important bloke, and you and your team have to philosophise a lot about the future of taxation, but – as I have written in the past – philosophy is to international taxation what a bicycle is to a fish. You, and the world-famous Tax Notes International, may think that the BEPS project is up there with the Theory of Relativity and World War II, but frankly it isn’t.

Dazzling

Dazzling

When tax bureaucrats become celebrities – and I stress that I am sure Mr Saint-Amans is amazingly good at whatever he does from 9 to 5 – it is time to think about hanging up ones Oxford Shoes.  A good tax advisor is someone who has a broad view of the business and political environment around him. There is plenty more to read about than irrelevant bla-bla regarding  tax people similar to himself.

So I say to the editors and my fellow readers of Tax Notes International: ‘Get a life!’

 

Go ahead punk, make my day

The good old days

The good old days

“This tape will self-destruct in five seconds.” In the 1960s, while the mission may have been impossible, information protection was very possible. Burned, swallowed or – until a bunch of  bored  students  were looking for something to do at the US Embassy in Teheran – shredded, there was no difficulty eradicating the evidence from the face of the earth.

How times have changed. I stayed late in the office last night to complete a compulsory on-line course on “Information Protection Fundamentals” concerning  the myriad risks to information confidentiality. Once upon a time you could buzz through the fifty-odd slides  (would I do such a thing?) and home in quickly on the test at the end. No more. Now you have to listen to a computer-generated Australian woman reading the entire caboodle at the speed of someone who really wants to inflict mental anguish. And just in case you were thinking of letting the lady talk away while you carry on with seriously chargeable time – should you forget to remind her regularly of your existence, she will self-delete and send you back to “Go”.

The presentation included a loveable rogue showing how easy it is to steal information. Although I am sure I must have missed something, it appeared to me that the deliverable was that you need to take the entire contents of your office with you (including the wastepaper basket) when you go out to lunch. Passwords must never be written down but should be so complex that they are impossible to remember in order that, in the event of the employee being waterboarded by representatives of a foreign government, his lips would remain sealed (however much he might like to spill the beans).

But what caught my eye was the bit about keeping the door open for strangers.

I was brought up to always check behind me as I went through a door and, if anyone was there, hold it open until the follower was able to take my place. Back in the 1960s they called this politeness. Not any more. Before letting anyone follow you without slamming the door  in his face, you are supposed to, albeit politely, make sure the visitor has a valid office pass. If not, you are instructed to escort him to the security officer who will then wrestle him to the ground and tie his arms behind his back before discovering he is the CEO of the firm’s biggest client.

No sooner had I completed the test with the unbelievable score of 90 (please don’t wake the neiighbours with your standing ovation) than I heard somebody trying to force the door of my floor. I ignored this at first on the grounds that this is what you expect to happen in an accounting office at 9.30 at night, but eventually decided to go and investigate. As I approached, I saw a rather unsavoury type  a few years younger than me (not your run-of-the-mill Big 4 client) rattle the handle one last time before passing an employee tag over the electronic sensor, thus gaining entrance.

Armed with my fresh doctorate in Information Protection Fundamentals, I politely asked him if I could help him. He looked at me nonplussed.

“Are you an employee of the firm?” I ventured firmly but respectfully (knowing full well that, even the most  Generation Y member of staff would have learnt on his first day how to use an electronic tag).

No answer.

“Could you tell me who is hosting you this evening?”

“I am with somebody out there.” At least it spoke.

What I thought I was doing

What I thought I was doing

I continued my friendly interrogation: “Can I see the name on your electronic tag please, or, I am afraid, you will have to leave the building?”

“I want to p***, you retard”.  He stared me down in absolute fury. “I am going to p*** and you can call the police if you want.”

Why is it that courses, online or otherwise, as well as Hollywood movies are always theoretical? The undesirable either comes quietly, runs off, or shoots the inquisitor in the head. The inquisitor is never left with the moral dilemma of whether to let the suspect relieve himself.  Not having much choice in the matter, I watched him thunder off in the direction of the bathroom and decided to await his return (the risk that he would make off with the faucets under his shirt did not reach the level of ‘more likely than not’). On his way back, he did his best to break another door before remembering what the electronic tag was meant for, and proceeded along the corridor towards me screaming insults directed at myself and my late mother. I genuinely believe he was about to hit me when a Y Generation employee – and owner of the tag – turned up and grabbed his arm.  It turned out, thankfully, that he was not a client (I remember an unkempt jeans-clad bloke once wandering into my office by mistake, and my treatment of him with mild but friendly sarcasm, assuming he was a workman who had lost his bearings. It turned out he was my next meeting – an extremely wealthy player in the local market. Fortunately, he took it well). This creep was involved in some project or other that we were checking – and I was relieved (sorry) to learn that there were no plans for him to darken our portals  again.

Who needs him?

Who needs him?

Although Information Protection in our technological world is absolutely crucial, I do wonder whether the practice can ever match up to  the theory. This has been particularly on my mind since the OECD reached a long-expected decision on May 6 that there is to be automatic exchange of information between members. Financial Institutions will be required to provide the tax authorities with information on foreign investors which will then be automatically transferred to their counterparts in countries of residence. Although miscreants may think they can take comfort in the authorities’ inability to deal with mounds of information, with the rate of progress of Data Analytics – sorting the wheat from the chaff – they are probably gravely miscalculating. As for the world’s tax authorities, although there will be conditions of confidentiality, the wide circulation of such information is bound to lead to horrible leaks  on the principle that “three people can keep a secret as long as two of them are dead”.

 

No flies on them, mate

Some people will go to extreme lengths not to visit Australia

Some people will go to extreme lengths not to visit Australia

Filling in the immigration card at the start of the descent into Melbourne International Airport earlier this week, I could not help but chuckle as I checked the “No” box against the question “Do you have any criminal convictions?”  I was unavoidably reminded of that hackneyed joke, attributed to the late Tony Hancock and especially popular among up-ourselves Poms, who is reputed to have answered: “I didn’t know it was still a prerequisite”.

One of the purposes of my visit to Australia is to speak at various events on the topic of the Business and Taxation Environment in Israel. As, a few weeks prior to my trip, a senior Israeli Government Minister had done the rounds here, I decided to ask him what he had spoken about. “Business and Zionism – I avoided politics.” When I replied to his enquiry as to my subject: “Taxation”, he slapped me on the back and suggested that perhaps I should speak about politics.

Remarkably, in the three weeks since preparing my presentations for the visit there have been no less than two momentous events directly affecting the taxation environment in Israel as well as an indirect one. Luckily, my powerpoint slides and the bloke talking around them, are sufficiently vague for nobody to have yet noticed the hurriedly shoe-horned bits. But the trip is yet young.

Just trying to do the right thing

Just trying to do the right thing

First off was a proposed amendment to the Income Tax Ordinance, tabled in the Knesset on January 29, that – if, and when passed – will empower the Income Tax Authority to demand automatic supply of information on  foreign residents’  income in Israel (primarily from financial institutions) and allow its voluntary transfer to foreign tax authorities on the basis of an international agreement that is not necessarily, as at present, a double taxation agreement. This, of course, smells of the brown-nosing that in school earned a thoroughly deserved duffing-up behind the bicycle shed by ones classmates. But the Israeli authorities are only bowing to the inevitable pressure from the G20 and OECD to ensure worldwide automatic exchange of information – one of the main tools in the international fight against tax evasion.  Passage of the law will pave the way for Israel to become the umpteenth signatory of the OECD’s sexily named “Multilateral Convention On Mutual Aministrative Assistance In Tax Matters” (MCOMAAITM…just kidding), which provides a legal basis for countries to agree on the said automatic exchange of information.

Confirming the timeliness of the Israeli move, on February 13 the OECD met its deadline to provide “A Standard for Automatic Exchange of Financial Account Information” (ASFAEOFAI….never mind) in time for the meeting of G20 Finance Ministers and Central Bank Governors on February 22 – 23 in Sydney (where I hopefully arrive just as they are leaving – it is all in the timing). This standard is based on the US FATCA rules and, when implemented either through bilateral or multilateral agreement, will require financial institutions to do those things the Israeli proposed legislation aims to facilitate. Automatic exchange of information will not be required where the other party does not reciprocate (you scratch my back and I’ll scratch yours) or where the other side is unable or unwilling to guaranty secrecy (being a brown-nose is one thing, but never a sneak).

However,  perhaps the most momentous event came to light early this morning (which was yesterday in Israel). I awoke to discover that an eminent  Tax Lawyer-friend with whom I had worked closely until I boarded a flight for Hong Kong last Sunday evening,  had been appointed a District Judge along with another equally eminent Tax Lawyer who was not a friend and with whom I had not worked closely at any time before boarding that flight for Hong Kong last Sunday evening.  It is evidently rare in Israel for partners in Law firms to be appointed directly to a senior court – but this reflects a welcome seriousness of purpose on the part of the Israeli authorities and raises the bar on the professionalism of the judiciary in deciding tax matters.

Another way of dealing with the latest mad-cap trust legislation

Another way of dealing with the latest mad-cap trust legislation

All in all, when I started preparing my presentations in January the Tax Environment was looking far more mature than at any point I can remember. The events of the last three weeks have only enhanced that position. There is, however, one exception: the new mad-cap trust legislation – concocted by the Tax Authority –  that came into force on January 1. The amended law needs to be placed on a convict ship and transported to Australia, never to return.  While I have every respect for the officers of the Income Tax Authority, it would not be a crime if one day the Finance Ministry were to take a leaf out of the Justice Ministry’s book and decide to appoint partners from major  law and accountancy firms to senior positions in the Tax Authority. After all, the present Australian Tax Commissioner is a retired partner of one of the Big 4. No prizes for guessing which 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.

Brave New World?

Does this guy really think all day about base erosion and profit shifting?

Does this guy really think all day about base erosion and profit shifting?

When, at 3 o’clock on the morning of September 30 , I flopped, bleary-eyed, into a chair  in a Berlin hotel room, activated my laptop and started to write about John Le Carre’s Cold War Trilogy, it did not occur to me that the ensuing post was to be the beginning of my (first) trilogy.

The story so far: A frightening woman chairing a British Parliamentary Committee in November 2012 breathes fire on representatives of Starbucks, Google and Amazon for planning their UK tax bills out of existence. She accuses them of immorality which, since cross-dressing and other fun activities are rumoured to be a staple of Westminster life, is a bit ironic.

Not as cool as the  OECD

Not as cool as the OECD

In June, the G8 leaders, bored out of their minds in some windswept corner of Northern Ireland, decide to call International Rescue but, instead of Scott and Virgil Tracy touching down on the adjoining golf course, they get Pascal Saint-Amans (pictured above), the sexy no-strings-attached   French Head of Tax Policy at the OECD (he replaced a not-very-sexy Welshman last year).

By the time of the G20 summit in St Petersburg in July there is a 15 point  OECD Action Plan in place, comprehensive enough to thwart the amoral designs of the most perverted of tax planners. What is more, just in case somebody manages to make it out of the killing fields alive, there is a rushed new draft on the transfer pricing treatment of intangibles as well as a plan for the automatic exchange of information, finally agreed to by the People’s Republic of China (that great champion of the right to privacy) on the eve of the subsequent September G20 summit. Meanwhile, the mob screams for the blood of multinationals and their advisors, most of whom do not look like heart-throb Saint-Amans. These days, life is good if you are a tax advisor with a death wish.

The big question is: What is going to happen next? This is a good question. Twenty years ago I would probably have ventured a straight answer; nowadays I am more reticent, which I suppose, by inference, means I am more stupid.

This was the moment to sell Imperial Bonds short. The markets failed to predict WW1

This was the moment to sell Imperial Bonds short. The markets failed to predict WW1

Some time ago a Dutch colleague sent me a copy of a fascinating book by Nassim Nicholas Taleb – The Black Swan. The basic premise of the book is that there are totally unpredictable events that have a massive impact on society and which are subsequently rationalised by that same society (why didn’t the useless US security services predict 9/11?). As a result predictions are nauseatingly inaccurate and using a broker for your investments is strikingly similar to paying the lady in the halter-neck evening dress sitting next to you to place all your chips on 21Rouge.

Predicting the future of the international tax world, therefore, comes with the disclaimer that none of what I am going to say will apply if: Rand Paul (son of Ron Paul, the serial presidential candidate who wants to turn the Fed and IRS buildings into luxury condos) is elected President in 2016; aliens build an intergalactic superhighway through the bit of Space currently occupied by Earth; the People’s Republic of China becomes the No.1 economic superpower and insists on corporate and individual privacy in line with Chairman Mao’s Little Red Book (totally upended edition); or the Messiah comes (it will only then be empirically clear whether for the first or second time).

The plans, if successfully implemented in their entirety, will lead to a fundamental realignment of the international tax area. The BEPS Action Plan, by targeting digital businesses, hybrid instruments, interest deductibility and transfer pricing at the same time as ensuring that tax planning, warts and all, is on public display at the local Tesco’s, will put paid to the magical sleight-of-hand international tax planning that attracted us all into this rural corner of the profession in the first place. The Revised Discussion Draft on Transfer Pricing Aspects of Intangibles will, by insisting on examining where value is created, substantially exclude all but serious MNE’s from shifting profits to lower taxed jurisdictions – such planning requiring the transfer of physical, living people who are actually going to carry out the functions to which they are assigned (shock, horror), as well as volume tax savings where the delta in tax rates may not be that great.

International Tax Advisors will continue to flourish – but in a much less exciting fashion. They will concentrate on tax efficiency rather than tax elimination – to the extent companies can move people, assets and risk between jurisdictions there may be genuine tax savings or deferral but, otherwise, planning will concentrate on not paying excess or double tax through inefficient structures. There will always be a need for companies to understand their tax positions in new foreign jurisdictions and all the signs are that compliance issues will continue to increase geometrically. In addition, there will always be Transfer Pricing (although, despite current protestations to the contrary, simple formulary apportionment will be used in all less material transactions).

Impossible goal? It went in

Impossible goal? It went in

The question that remains is how likely it is that the plans will be implemented in their entirety. The OECD and G20 have set ambitious deadlines for just about everything being complete by the end of 2015. While a lot of the issues have, in practice, been under consideration for some years, most of the deadlines appear ridiculous. Grown-up nations like Britain and France, while  publicly sponsoring and supporting the reforms, themselves offer tax incentives that will need to go; not all developing countries are on board; and, most significantly, unless they can substantially convince every sovereign country to agree to a Multinational Instrument that would change international tax relations without the need for the renegotiation of bilateral tax treaties, the whole thing could take decades. On the other hand, it is unlikely that public awareness of the issue will now evaporate and that governments will take it off the agenda. To get this to work some time in the next decade it needs thought (the OECD), goodwill (the G20) and brute force (the United States).

At the end of the day, as in so many difficult situations, it will be up to Uncle Sam to speak softly and carry a big stick. My money is on that. Croupier, spin the wheel.

Judge for yourself

Practicing for next term of office?

Practicing for next term of office?

Silvio Berlusconi has a mission. Having already successfully nobbled two branches of government – the executive and legislature – he is out gunning for the third.

In a speech that in any other country would have had him up in front of the Beak accused of incitement, the newly convicted (this one’s for tax evasion) former Italian Crime Minister earlier this month went as far as to say that the judiciary that had convicted him exercised “the worst power – the power to deny someone their freedom”.

Now Silvio, darling, I know you are the latest in a long line of Italians the likes of Julius Caesar, Pope Alexander (Borgia) and Benito Mussolini who, shall we say, were born without the rule of law gene, but what do you really think all those judges are for if not to deny people’s freedom?

I really do think you are missing the point when you decry such  treatment of “someone who has given 20 years of his life to the nation”. Dear boy, you are not supposed to be above the law just because you were Chief Clown. Your sentence is something of a joke – because you are 76 years old and have had some modest success in buggering up the country’s laws during your three terms in charge, you are facing one year of house arrest or community service. You probably have an estate the size of Milan and, anyway, what community service is a 76 year old fit for (don’t answer that – you are being tried separately for that nonsense) ?

Watching Berlusconi’s privately produced video following the conviction, it occurred to me just how inadequate simultaneous translations are, and how difficult is the task now facing the OECD following its new mammoth commission from the G20 to clean up the world’s tax act in time for tomorrow morning’s  breakfast.

Mr Berlusconi, sitting at a desk with a backdrop of flags fit for a Duce, looked – thanks to the AC Milan boss’s season ticket to the cosmetic surgeon – like a cross between Pinocchio and Barbie’s boyfriend, Ken. Trying to understand what he was about was not just a matter of the inevitable lipsynch problems of English words crowding out the Italian pouring from his mouth. The man’s logic and body language were totally incomprehensible to a Brit like me, despite my substantial Mediterranean connections.

Same agency that dealt with the tax evasion issue?

Same agency that dealt with the tax evasion issue?

Around the same time Messrs Dolce and Gabbana, who I assume require no introduction among the refined readership of this modest blog, reacted to their own tax evasion (yawn!) conviction with  a full-page advertisement in the world’s press protesting their innocence (or something like that) accompanied by all sorts of data. Now I, as a Brit and despite my substantial Mediterranean connections AND a career in tax accounting, did not understand a damned word.

Yet,  neither Mr Berlusconi nor the luxury goods pair are stupid. And, even if they are, their PR people surely cannot be? My conclusion is that Mr Berlusconi’s advisers knew their Italian audience who view the whole Berlusconi saga in a different light to the rest of us (let’s face it, they elected him 3 times), while Dolce and Gabbana’s Italian advisers are, sadly, stupid.

According to my Atlas he was also an Italian

According to my Atlas he was also an Italian

This all brings me to the conclusion that the OECD is on a hiding to nowhere. Thanks to sheer American bullying power, there will be some progress in such areas as Exchange of Information but much of the 15 point plan (see last Post) is going to get mired in disagreements over different value systems. As the northern hemisphere celebrates the centenary of the last summer before the old world got taken to the laundry, that is hardly surprising.

Populist leaders are ruled. OK?

G7 Summit Advanced Quiz. The chap from the EU makes it harder to spot the Italian

G7 Summit Advanced Quiz. The chap from the EU makes it harder to spot the Italian

Never one for crosswords or brain teasers, in my younger days I got my quiz kicks from lineups of leaders at  G7 Economic Summits. Always familiar were the Presidents of the US and France, the Chancellor of Germany and the Prime Minister of the UK. The Canadian premier would generally give himself away by the jutting jaw honed by evolution to fell a tree with one bite, while the Japanese PM was invariably, well, Japanese. That left the one  nobody recognized because he had never been in the job more than 3 weeks – the bloke from Italy.

It was nostalgic to view the line-up at the G8 last month – Russia has now come in from the cold – and, as in days of old, stare blankly at the Italian (I still don’t know his name).

Probably because the Summit was in one of the most God forsaken places on Earth (Northern Ireland) – the leaders turned their minds to taxation. A politician trying to deal with taxation is much like a bomb disposal expert trying to deal with unexploded ordnance – only without the expert bit. Those of us deemed by politicians (!!) to be of perverted mind and questionable morality proffer thanks therefore to the Great-Tax-Collector-in-the-Sky for ensuring the issue was kicked into the long grass of this months’s G20 Summit  in the utterly not forsaken St Petersburg (fka Leningrad fka Petrograd fka St Petersburg). Nothing, but nothing, will be achieved there other than strengthening the hand of the OECD. While the tax gurus at the OECD are impossibly slow in arriving at decisions, they do at least understand the intricacies of our ignoble craft and are the best bet the world has for getting things straight.

The communique issued at the end of the G8 Summit listed the three Ts: trade, tax and transparency. In the field of taxation the leaders plan automatic exchange of information between tax authorities as well as a central register of beneficial ownership of companies, both of which should help combat tax evasion – difficult for even the most hardened of tax hacks to argue with . Joining the populist revolt against Multinationals, the leaders declared that “On tax avoidance, we support the OECD’s work to tackle profit shifting and base erosion” – laudably reserved language given that the host of the event, David Cameron, had been quoted in the left-wing Guardian as saying: “Some forms of avoidance have become so aggressive that I think it is right to say these are ethical issues”, while urging multinationals to “wake up and smell the coffee”.

Starbucks HQ

Starbucks HQ

Other than the obviously crude reference to Starbucks who managed to turn the method for making a cup of coffee into low-taxed, high value, intellectual property, I fail to understand what was percolating through  the Prime Minister’s brain when he came up with that daft metaphor. But usage of the term “ethical” in the same sentence as “avoidance” makes my kettle boil.

Does Mr Cameron need reminding that, while he may be in a morganatic marriage with a bunch of toenail-picking lefties, his party is the standard-bearer of Capitalism? Emotive words like “ethical” and “moral”, let alone “avoidance”, do not cosy-up  with “Capitalism”. Capitalism is not an ideology, it is not weighed down with subjective value judgments. The only brakes on Capitalism should be laws passed by parliaments to curb its excesses. A good capitalist will always be looking for ways around restrictions to enhance the march of Capitalism because that is his job. He is naturally centrifugal rather than centripetal. He might throw in a bit of Social Conscience along the way out of the goodness of his throbbing heart – but it is the function of legislatures to rein him in.

While popular protest movements have every right to object to multinationals like Apple, Starbucks, Google and Amazon paying less tax worldwide than Warren Buffett’s secretary, populist leaders and legislatures would do well to take a break from their brown-nosing and reflect on who is really to blame rather than labeling companies”immoral”. If they came up long enough for air they might realize that, instead of  bellyaching with the protesters, it is their job to ensure that the right laws are in place.

If truth be told, the main problem with multinational non-taxation is what that bastion of bankrupt socialism the Guardian angrily identified as “the practice of transfer pricing”. Consistently applied rules across nations by multinationals based on the three pillars of: functions, assets and risk have indeed enhanced the mobility of profits to unlikely corners of the Globe. But who put those nutjob rules in place? Waitforit……the OECD – the darling of the G8 which is now being entrusted with the job of getting all these nasty companies back in line.

The arbiter of morality - the newspaper that supported Hitler and Mussolini in the 1930s

The arbiter of morality – the newspaper that supported Hitler and Mussolini in the 1930s

Accusing an inanimate corporate entity of immorality is beyond the realms of even my fertile imagination, but if the OECD is to get anywhere “before”, as Mr Cameron might have said, “the coffee goes cold”, all 34 member governments plus others with observer status are going to need to instruct their international tax teams to cooperate beyond their narrow interests to arrive at rules that are workable and fair in a multinational context. Experience to date does not  bode well for the future. In the meantime governments should accept that, in the interests of capitalism, the tax fraternity will continue to seek out loopholes as they seek to maximise market efficiency. Brains and pens at the ready. Let the battle begin.

The ultimate illegal alien

Thought-provoking literature

Thought-provoking literature

While Shuster, Siegel and Kane were, without doubt, the Olympians of Action Hero Comics,  the creators of Superman and Batman – each the 24 year-old  son of Jewish immigrants from Eastern Europe – were never going to be the  heirs of Socrates, Plato and Aristotle.

Man of Steel, the latest Superman blockbuster that I ran faster than a speeding bullet to see last week, is best described as schizophrenic. The first 90 minutes – the average length of a 21st century movie – is cerebral beyond anything Clark Kent’s creative young gods could have possibly imagined, while the 53 minutes of extra time are pure, unadulterated violence, which is what they very probably did imagine. Violence and one single hell of a kiss. (Spoiler Alert – if you don’t know the Superman story by now, go back to Krypton). As our Superhero and Lois Lane embrace amid the ruins of Metropolis they are  watched admiringly by a group of misty-eyed US army officers while General Zod still lurks in the shadows ready to end any chance the studio has of making Man of Steel – The Sequel. The scene is the watermark that proves the movie is genuine, infantile Hollywood.

Whatever Shuster and Siegel were thinking of when they were penning and inking the first adventure in 1938 (whoosh, pow, thwack?) they may have subconsciously been delving into their immigrant roots. They would likely have faced discrimination as kids and young men and this alienation does come out quite starkly in this latest cinematic offering – even if Clark Kent did not sail Steerage Class from Hamburg to Metropolis.

Earlier this month the OECD (the club of rich nations except the rich nations that are not members) published the latest edition of its International Migration Outlook report. 400+ pages of taxpayers money to come to the conclusion that the fiscal impact of migration is broadly neutral – that is to say, immigrants normally pay more in taxes than they claim in welfare.

With xenophobia spreading faster across the globe than  Middle-Eastern  immigrants to Europe, that money may be well spent. Enlightened politicians of developed nations, no longer able to use anti-immigrant arguments based on the lengths of noses or racial inferiority, have in recent years  opted for the economic argument  – immigrants are a drain on social services while not contributing enough to the national coffers. This latest report deflects that contention: while there are pockets where it is true such as Germany, in the main immigration neither adds not subtracts. Having said that,  young educated immigrants are deemed a definite boon.

He presumably robbed an American of his job

He presumably robbed an American of his job

Despite being the grandson of immigrants (and, indeed, an immigrant myself) I am not sure this 400+ page of apologetics quite hits the nail on the council house door. Stating that immigration is a substantially zero-sum fiscal game does not  take into account the effect on unemployment among the indigenous population crowded out of the job market (which was the ubiquitous gripe when I was a young man and should come round once more on the xenophobic carousel sometime soon).

The immigrants a country does need are those that add value to the economy – those that bring skills and diversity of thought (and hence innovation). In addition, unskilled labour is required for the functions the indigenous population are no longer prepared to undertake. Of course, the social consequences must be considered together with the fiscal ones. While cultural diversity is without question a boon to petrified- fossil  countries, any attempt at minority cultural hegemony  must be unceremoniously rebuffed.

And while we are on the subject of the advantages of diversity....

And while we are on the subject of the advantages of diversity….

Michael Chabon’s award-winnning novel The Amazing Adventures of Kavalier and Clay tells the tale of a refugee from Nazi Europe who creates a comic strip character that fights Fascism – the immigrant’s superhero. Superman was the ultimate immigrant with  strange, suspect powers  and weird clothes – but he was also the All-American boy who paid his way and devoted himself to his adopted nation. That is what immigration should be all about. Maybe, after all,  there was more to Shuster and Siegel than meets the non X-ray eye.

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