Tax Break

John Fisher, international tax consultant

Archive for the tag “tax evasion”

Trying to keep the relationship platonic

Following the recent news of Greece’s continuing woes, and thinking about what to write, I soon realized that very little has changed since I penned the two Posts below in 2012. The country’s new whacko Government has won a reprieve from a fatal dose of international hemlock by promising to come up with alternative measures to meet the ‘Troika’ demands for a formal extension of its bail-out package. It looks like the great deficit-plug is to come from the ruthless prosecution of tax evaders (ha, ha). Indeed, a former finance minister went on trial yesterday for allegedly removing relatives’ names from a list of unreported offshore bank accounts (see Post from 2012 below – and ponder the relative amount of time it took to get him and the whistleblower to court). Furthermore, another former finance minister received a four year sentence last November for undereporting his income, although ‘four years’ subsequently turned into a €14,500 fine (the annual price of freedom in Greece, it turns out, is €3,625. Cheap at half the price). In short, Greece continues to be a hopeless case. The only question is whether foreign creditors are actively engaged in allowing the wool to be pulled over their eyes. Read on (I apologize in advance that you may be seeing this again in 2018):

Olympic spirit lost

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.

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.

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.

The Greecy pole

When it was suggested last week by a sympathetic BBC interviewer that the Italian government’s decision not to fund Rome’s bid for the 2020 Olympic Games had cost Italy the chance of taking its place on the world stage, the interviewee retorted sharply “Italy has been on the world stage for 2000 years”. Meanwhile, the Greeks keep reminding us that, as the cradle of democracy and western civilization, their continued hammering by the European Union is beyond comprehension. We should be thankful, at least, that the Germans have not yet chosen to harp back to the past.

Greece really does appear to be sliding down a greasy pole. The new government has continued its predecessor’s vain attempts at improving tax collection while trying to make new taxes stick in a country in which, thanks to rampant corruption, tax evasion is effectively state sponsored.

On January 22, a list of 4152 tax cheats was published in an effort to shame people – they must be joking – into paying up. Most fascinating was the fact that, even though the authorities know where they live, most of them have not been prosecuted. This is evidently thanks to there being a backlog of 165,000 cases in the courts. One prominent exception is, top of the list, Nikos Kassimatis (an accountant!) with an amazing 952 million euro owed, who is currently serving a prison sentence for VAT fraud which has probably taken away his appetite to settle. In a country where the judiciary clearly has a problem getting its act together, this may not be a case of the punishment not fitting the crime but – to put it in perspective – had he been convicted just before Henry VIII became King of England in 1509 he would be looking at walking free about now (not allowing for a couple of hundred years knocked off from his 504 year sentence for good behaviour).

An earlier list of 6000 major corporate delinquents was made public in September 2011. First prize went to the Hellenic Railway Organization which was running incredibly late with an unpaid tax bill of a whopping 1.26 billion euro – a real achievement given the fact that its owner is none other than the Greek government.

The now famous aerial inspection of houses with undeclared swimming pools, reported as carried out at great government expense by helicopter surveillance when the same result could have been achieved on Google Earth, has at least caused economic growth in the form of an increased demand for camouflage material. It has not been reported whether swimming pool owners have been paying cash for these purchases.

Meanwhile, while various officials have been forced out for either having their palms greased or turning a blind eye to the actions of others, the government came up with two quite ingenious methods of improving collection. Firstly, the new and much hated (along with every other) property tax is to be collected through household electricity bills. Non payment would result in disconnection from the National Grid and, in winter, death from hypothermia. Secondly, there is some madly complex , novel system using a smart card that enables the authorities to track a taxpayer’s payments. In keeping with Greek tradition, use of these cards is voluntary although it is not clear why the authorities don’t just start by looking up the names on that tax dodger list in the telephone directory and go knocking on their doors.

Alongside tax collection, privatization and reduced salaries, Greece has also been told by the EU and IMF to revamp its tourist industry. Knowing the Greeks’ record on compliance, left to their own devices, this will probably result in a new set of floodlights for the Acropolis and creation of more , euphemistically titled, clothing-optional beaches where German tourists can get an all-over tan while they are being burnt at home by the forced write-off of Greek sovereign debt.

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.

Bend it for Messi

Bonzo, is that you?

Bonzo, is that you?

Having reached my majority in an era that nowadays pops up in my kids’ History exams, I am today at a stage in life where names and faces are prone to be mixed-and-matched. Every time I hear mention of Lionel Messi I invariably see Lionel Richie’s mustachioed head protruding from an FC Barcelona shirt. It was, therefore, no surprise that when the world was confronted with the shocking news last week that Mr Messi and his father (Mr Messi) are facing criminal investigation in Spain for tax evasion, my first reaction was: “Hello, is it me you’re looking for?”

Top sportsmen really do have complicated financial lives and I admit a little sympathy for the World’s Greatest Footballer if he did (and he vigorously denies it) get caught up in a bit of over-zealous tax dribbling. If convicted, we are told he faces an undisclosed fine and up to 6 years in a Spanish lock-up.

Now, unless you are one of those people with piles of cash stashed away in increasingly less remote tax havens waiting for a knock at the door, your reaction to this is probably: “Nobody is above the law and if he broke the law he should be punished and if that means depriving him of his liberty so-be-it”. I should have added, you are probably also not a Barcelona fan. Nor am I, but I am afraid I don’t think I agree with you. So there.

Only 6 years? Are they crazy?!?

Only 6 years? Are they crazy?!?

Apart from the fact that the Spanish legal system is probably too incompetent for him to be brought to trial before the end of his natural life (he is currently 25 years old) and they will need to find a rabid Real Madrid supporting judge with a fanatical death wish to convict him, the modern world thankfully operates under a system of Moral Relativism. And modern (as well as not-so-modern) governments know how to cleverly render  Absolute Immorality relative for the better good of the world and for the even better good of their poll ratings.

Earlier this month I gave my teenage son a night tour of South-East London where I spent much of my childhood. Driving up Denmark Hill (around the spot where Pip attends a wedding at the end of Great Expectations) I told him that, but for the quick reactions of an anonymous bus passenger thereabouts in 1944, neither I nor he would have ever seen the light of day. My mother was standing on the bus as a V2 rocket exploded nearby (it was probably a V1 doodlebug which told you it was coming – but that would ruin the story). The gentleman threw her to the floor just as all the windows imploded.

Well, you might have thought that, as the war came to an end and prominent Nazis and their prominent assistants came up for trial,   the genius who developed the deadly V2 would have found himself dangling at the end of a rope. What actually happened was that Werner von Braun was spirited off to America where he was the “One giant leap for mankind” to Neil Armstrong’s “One small step for man”. He developed the Saturn V rocket that powered the Apollo missions. With that, America won the space race, countless lives were enriched and the Allies saved a perfectly good piece of rope.

On the other hand, look what happened to poor Oscar Wilde. The author of some of the most important literary works to do the rounds in the 20th century, as well as one of the greatest wits in history, lay dead in a cheap Paris Hotel in 1900 only 46 years into a hyper-productive life. Already bankrupted by an ill-advised libel case that backfired, in 1895 he was sentenced to two years hard labour for being gay (for which a growing number of countries now condemn offenders to get married).  On release from prison he went steadily downhill. While, without that prison sentence, we would never have had the haunting Ballad of Reading Gaol (that is Jail in potty English) or De Profundis, we would have surely had a colossal output that was lost to the world before it was even created.

If Lionel Messi is found guilty, he may well deserve his fate – but the world does not. Here is a genius with a limited number of years to work his magic. If the world reacted with justified outrage at the destruction of World Heritage sites in Timbuktu by the Taleban – even though Timbuktu is the traditional end of the world and most of us will never go there – the destruction of the career of a temporary World Heritage site with a planet-wide following must surely be considered all the more outrageous.

Trial jury?

Trial jury?

Nevertheless, for the indignant righteous, there is a compromise.  The Spanish could hurry through the trial, find the Argentinian guilty and then offer him two alternatives – a lengthy prison sentence OR an application for Spanish nationality so that he could play for Spain in the 2014 World Cup in Brazil. However morally relative all this would be, it would be worth it just to see the faces of those Argies as they crash out in the group stage.

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.

Tax Wars: The Authorities Strike Back

Gagwriter extraordinaire

Gagwriter extraordinaire

Suicide is not a laughing matter. Last week marked fifty years since American poet, Sylvia Plath, took her own life, and the benefit-of-hindsight news stories on the subject were uniformly depressing. It is interesting, therefore, that one of the most successful comedy series in television history opened each week with a song about suicide. Thirty years ago this month  Alan Alda climbed into a helicopter, circled over an improvised “Good-bye” message set in the Korean soil, and, together with M*A*S*H,  flew into the sunset.

It transpires that, after seeing the 1970 film,  it was “Suicide is painless” with such cheerful lines as: ” The game of life is hard to play, I’m gonna lose it anyway”,  that inspired Larry Gelbart to script and produce a TV series. Played in a minor key, the melancholy tune exposed the funny, but almost tasteless lyrics, as pure irony – the song was anti-war. Screened when the Vietnam war was at its most painful to the American people (not to mention, the collaterally damaged residents of Cambodia and Laos), Gelbart fought with CBS over the infantile canned laughter that was shoe-horned into every pathetically unfunny US comedy series of the time – noting that there was no canned laughter in the real Korean War. He ultimately achieved a compromise whereby he was allowed to omit the puerile cackling from operating theatre scenes (MASH stood for Mobile Army Surgical Hospital). It is to Gelbart’s  credit that he managed, like his subsequent triumph with Dustin Hoffman’s cross-dressing “Tootsie”, to avoid turning the whole thing into a sick (sic)  joke.

We tax planners, of sedentary build and heavier step, are sometimes less nimble with our words and actions. Tax planning can sometimes be a sick joke, warranting a single finger salute down one’s own throat. Take Spain, for example (sometimes, I wish they would).

If they consider this fair, no wonder they don't pay tax

If they consider this fair, no wonder they don’t pay tax

When the Spanish Government hiked the VAT rate to 21% last September as part of the austerity programme resulting from the Euro crisis, a theatre in a small town in Catalonia found a way round the increase. Staple foods were still only liable to 4% VAT, so the theatre owner received permission from the town council to set up a vegetable stall outside the box office, where theatregoers could purchase a carrot for €15 – €17 inclusive of 4% VAT (the difference arising, presumably, from variances in size of the carrot). Free with the carrot came a theatre ticket. It is understood that, prior to the commencement of performances, patrons were asked – in addition to turning off their mobile phones – not to munch their carrots (which, apart from the noise, presumably might be needed for re-admission if they popped out in the interval). Had I been the Spanish authorities, I would have garotted the lot of them and fed them to the bulls.

This kind of shtick gives tax planning a bad name. It is the equivalent of throwing a custard pie in the face of the government to the accompaniment of pathetic (canned) laughter or, to be more on topic, spitting out a liquidised carrot giving the “hilarious”  impression of spontaneous vomiting. Yuck!

It appears, strangely,  that there is nothing illegal in what the Catalonian Jesters did. On the other hand this kind of tax avoidance is definitely way beyond the parameters of what members of  the Spanish Cortes had in mind when they conjured up the legislation.

There are currently moves around the globe to curb excessive tax avoidance, in the form of General Anti Avoidance Rules (universally known by the acronym GAAR, which onomatopoecially  sounds pretty much like someone with a single finger stuck down his throat).

Britain’s new rules should enter into force in the next few months while India, to the relief of foreign investors still digesting the Vodafone case, has delayed implementation until 2016. Australia and New Zealand have had rules for donkey’s years while Canada came on board in the 1980s and China a couple of years ago. The US has something  slightly different because the US always has something slightly different.

Occasionally, committees have been known to do a good job

Occasionally, committees have been known to do a good job

Although, in principle, the GAAR is a pretty slam dunk concept, it is in practice highly controversial. On the one hand governments need to be able to curb the most blatantly aggressive tax planning; on the other, investors and businessmen crave certainty while a GAAR instills fear (often justified) that virtually everything is up for grabs. Methods to try and achieve maximum fairness include having a regular tax authority committee, rather than individual tax officers, to decide on GAAR cases accompanied by very narrowly defined terms for applying the GAAR. Ultimately, the GAAR is, by definition, subjective and there cannot be any perfect answer. It depends from which angle you look at it, and both tax authorities and tax advisers often contort themselves into the strangest of poses to obtain the weirdest of views.

With all the drama of the tax wars (dear reader, allow me my fantasies) it is probably high time  for a TV spin-off of another major film. How about the mega-successful, Les Miserables ? The tax profession would be very happy with the current cast – Hugh Jackman as the morally superior tax planner Jean Valjean making the world a better place and Russell Crowe as the stickler-for-the-letter-of-the-law tax enforcer Javert. The world’s tax authorities might, however, have a problem with this. They are more likely to go for the late Heath Ledger, with a bucket of make-up thrown over his head and an entire red lipstick smeared over his lips, as a psychotic Valjean and Christian Bale as the black-caped saviour of the universe. Had Larry Gelbart still been around to take on the project, he would have been challenged by “One day more”. Written in a major key, it includes the sickest of Javert’s lines  “I will join these little schoolboys, they will wet themselves with blood”. On second thoughts, maybe he would have just turned up the canned laughter and comforted himself with the fact that all the characters were French.

What a wonderful world

Subtle

Subtle

Although we are a family of fairly avid readers, other than a few coffee-table staples, books do not  feature in our living room. Well-leafed and generally abused volumes are neatly filed on bookshelves in bedrooms and on our upstairs landing, or unceremoniously dumped in unlikely corners of the house (I stumbled on a haphazard pile on the staircase to the roof the other day). Some authors are more popular than others but we rarely sport a full set. We have all read the Complete Juvenile Works of JK Rowling (including The Tales of Beedle the Bard) but would be hard pressed to lay hands on more than two installments, both of which are by now missing critical narrative. Dickens, Austen, Le Carré and PD James are well represented in various fonts and sizes. But, perhaps our most preserved  set, neatly placed above our youngest son’s desk, is Terry Deary’s Horrible Histories.

Now, I am sure Mr Deary would not consider it  libelous were I to state that this is not great literature. In fact, I am not sure it passes as literature at all. With titles like “The Terrible Tudors” and “The Even More Terrible Tudors”, the illustration packed volumes  tell us, in graphically comic detail, just how horrible life was in the bad old days – pretty horribly.

Reading (or, to be more precise, leafing through)  the Horrible Histories, it is easy to be lulled into complacency about the present.

Heil Hitler!

Heil Hitler!

I am beginning to think that the world is not quite as nice a place as I would like to think it is. To be clear, when I say “world”, I do not mean the  majority of the 200 or so countries that constitute that  carbuncle on the face of modern civilization, the United Nations. One day, when those rogue nations are free-speech toting liberal democracies, Mr Deary will be able to make another fortune writing their Horrible Histories.  I am referring to cosy countries like yours and mine that think they are approaching the final synthesis in the Hegelian dialectic when all households will have at least one  TV in every toilet.

To be even clearer, I am also not referring to the horrendous actions of individuals and organized groups. There will always be outliers in every sphere of society. It is western governments that are the problem. They have become very good at repackaging old nasties in inoffensive euphemisms and glossy camouflage. And  if we, the silent majority, do not watch out – they will get away with it.

Take torture, for example. The activities at such sunny resorts as Guantanamo Bay are  regularly referred to as Enhanced Interrogation Techniques, which sounds like a project undertaken by a management consultancy firm. Even the mention of Waterboarding gets me humming Beach Boy tunes rather than thinking  of medieval Ducking Stools.

Even our own tax world has its fair share of practices cleaned and rebooted from yesteryear.

There was the 504 year sentence handed down last year to a Greek tax miscreant. Apart from the absurdity of a sentence that cannot possibly be served, what possesses any modern system to deprive a man of his freedom for all eternity for a crime that did not involve the taking of another life. We all (other than many of the members of that august institution, the  United Nations) are appalled by stories from more than 200 years back of young men being hanged for stealing sheep.  To all intents and purposes, there is not a colossal difference.

"Tell us the whereabouts of your father, boy, and we will give you $104 million"

“Tell us the whereabouts of your father, boy, and we will give you $104 million”

And what about the award  of $104 million that the IRS made last September  to a single Whistleblower in the UBS case? The first thing that came into my mind when I read the story was W F Yeames’s painting of a Parliamentarian’s  interrogation of two young children in the English Civil War, as he tries to establish  the whereabouts of their father. If there was one quality rammed into me by the British school system it was the Eleventh Commandment, “Thou shalt not sneak”. Honour among thieves was a real value and we would have rather faced the stick than split on our schoolmates. To be fair, teachers expected and respected that behaviour and often punished the snotrags that “told tales” (mind you, it didn’t stop the bloody sadists using the stick anyway). Waterboarding, at least has the possible justification that its use might save many lives. What is the IRS’s excuse?

Then, a few short weeks ago, none other than Her Majesty’s Revenue and Customs, for the second time in less than 6 months, published on Flickr mug shots of the 32 “Top Tax Criminals of 2012” .  When I was a kid, I used to pass a big blue plaque every day in our local high street that read “On this site stood the Parish Cage or Lock-up”. My (incorrect) assumption throughout my childhood was that this was the site of the local Stocks, where petty criminals would have their heads, hands and feet secured, allowing passers-by to take free aim with eggs and tomatoes from the nearby Tesco’s that had passed their sell-by dates. I actually had a taste of this as a young (innocent) adult. In charge of a children’s summer camp one rainy August, my team organized a Summer Fare. One of the star activities was throwing anything that went mushy on impact at yours truly tied helplessly to a chair.

Publishing the photos is the same concept of public humiliation that I thought had gone out with the Stocks and Public Executions outside Newgate in the 19th century. What is more, all but one of the wretched cons are behind bars already serving out their sentences and they are unlikely to be seen around town for some time to come. So what was achieved?

There is one thing, though, that can be said in favour of the British system. Publishing the photos HMRC announced that they were serving a collective 155 years and 10 months in prison. Had this been been Greece, that wouldn’t have even covered the third off for good behaviour of a single one of them.

I am not an anarchist. I passionately believe that people should not be allowed to break the law with impunity. However, the punishment should fit the crime. Furthermore, governments should think about the negative effects on society as a whole of efficient but, essentially unethical, laws and practices. There has been a lot of publicity recently about the outrage of the British Parliament over the tax practices of US multinationals. As I reported a few weeks back, Margaret Hodge – who led a Parliamentary investigation – told the representatives of Google, Amazon and Starbucks: “We are not accusing you of being illegal, we are accusing you of being immoral”. I suggest you get your own House in order first, dear.

A funny thing happened on the way to the Forum

"Who needs a programme?"

“Who needs a programme?”

As a kid, did you ever dream of an extra tap in the kitchen that dispensed endless lashings of Coca Cola  and Strawberry Milkshake? Or what about being let loose for an afternoon inside a locked, and deserted, sweet shop? Well, the  not-so-juvenile tax practitioners of Bungabungaland woke up on November 21 to a dream come true.  A new programme was launched a day earlier which, similar to the speed trap warning programmes marketed by mobile phone companies, tells you how much you need to report to the Bungabungaland tax authorities in order to avoid suspicion. In a country where tax evasion is part of the national culture, the idea that you could key in your assets and expenditure and be told how much taxable income to declare, is truly amazing. What is more incredible, and could only happen in Bungabungaland or its neighbour across the Ionian Sea, is that the programme is on the Italian Tax Authority’s’ website.

The truth is that the idea is ingenious, if impractical. In a country where nobody wants to tell the truth about their taxes (morality has been outsourced to the Vatican for centuries ), why not let  people feel they are deceiving the authorities by tweaking the edges of the programme, while they end up  paying substantially more tax than they otherwise would have done?

But, philosophy aside (and philosophy is an absolute aside when it comes to taxation), what is really so strange about all this in a country that is capable of producing a leading politician who is a stand-up comedian?

Spelling was never his strong point

Spelling was never his strong point

At the end of October second place in the Sicilian Regional Election was taken by Beppe Grillo’s Five Star Movement. Grillo, a former accountant and banned TV comedian,  was previously best known for organizing  V day celebrations in which he outed Italian politicians convicted of  serious crimes. The V was short-hand for a two finger salute which, in turn, was short-hand for something  often spelt with a surfeit of asterisks.

His party’s political success – it is currently running second in some polls for the upcoming General Election – is a sign of how bad things have become since Bunga Bunga. Of course it is not the first time the Italian electorate have done strange things – an Italian colleague reminded me yesterday that porn star La Cicciolina was elected to parliament for five years in the late 1980s on a platform of environmentalism and free love and, if we really want to go back, Caligula proposed making his horse a Senator.

Meanwhile, reading Grillo’s famous blog (there are Italian and English versions) he does appear to talk quite a lot of sense – including insistence that taxes are a good thing as long as they are  not used for the things they are used for now.

In point of fact, a stand-up comedian going into politics is not as custard-pie-in-your-face laughable as it sounds. While Italian politics has, for much of the last 20 years, been a hotbed of slapstick comedy, the dry interregnum of Mario Monti is  providing an incubator for the resurgence of  satire. Stand-up comedians are at centre stage in modern satire, the successors to Voltaire, Thackeray, Wilde and Dorothy Parker. In amplifying the ridiculous or unacceptable in everyday life they are one step ahead of their audience in consciousness of what is really going on around them. You laugh at a stand-up comic because he hits you with scenes that you realize are obvious but about which you have never gathered your thoughts (or thought that nobody else would consider them as important).

A political leader in a modern democracy should be someone who has the perception and ability to articulate what society is groping for but is not collectively able to express, and then make it come true.  That goes one step further than a stand-up comedian’s CV, but that may not be important for Grillo. As one who exposes the negatives of society, a stand-up comedian may not be well placed to go the extra mile with positive action- which is crucial to leadership. However, Grillo has stated categorically that he will not join in coalition with another party. What that means, in a system that inevitably produces coalitions, is that he is running for the post of Leader of the Opposition. For that he is perfectly qualified. The only question is whether Italy would be better off having him outside parliament protecting democracy as part of the Media Fourth Estate or, inside, protected by parliamentary immunity.

The Montis were luckier than her

The Montis were luckier than her

Meanwhile, the rest of the world has been enjoying the quiet studiousness of Mario Monti and his cabinet. That is not to say that there have been no moments of humour. Almost a year ago, according to the BBC, a Deputy in the Italian Parliament challenged that, with austerity biting and Bunga Bunga still banging on the frontal lobes of the entire population,  the new Prime Minister had held a lavish Christmas party in his official residence at the taxpayer’s expense. In reply to the accusation, Mr Monti, explained that he and his wife  had, indeed, held a party –  for their children and grandchildren. Mrs Monti had gone shopping herself for the food at her own expense and had cooked and served the meal herself. Mr Monti did point out that she had indeed used the gas stove in the official residence, the gas being paid for from the public purse. He hoped, however, that he and Mrs Monti would be forgiven this extravagance bearing in mind that, on assuming the premiership, he had refused a salary and was working for nothing.

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.

World without borders

German parachutist infiltrates London Olympics

Blitzing Mannheim last Tuesday in advance of a meeting the following morning, I soon tired of the centre of town with its Water Tower, Paradeplatz  and street names like P3 and Q5. Settling  into my hotel room, I turned on the TV. Confronted by Mary Poppins dubbed into German – at least in British war movies they made the Germans speak English with a middle-European accent – I decided to chance my luck with the radio embedded in the dashboard next to the bed.

Where is the Turkish music?

The radio was an experience in itself, bringing back memories of the car radios of my childhood. By rotating a knob a red plastic marker glided along the horizontal dial – there were no pre-tuned stations. Trying FM first and fully expecting to be blasted by Beethoven or Bach at every stroke of the knob, the only music I hit upon was a Turkish pop channel. My opinion of Turkish music was formed in the era before public voting in the Eurovision Song Contest when Turkish singers were considered national heroes if they scored any points at all; evolution definitely rid Turks of the music gene. But it was medium wave where the fun really started. As I moved between wavelengths in the hope of colliding with the BBC World Service, I listened to the whistles and wooshes as stations slowly appeared out of the audio fog and then receded again into obscurity. It occurred to me that seventy years ago across that embattled continent many would have searched for Alvar Lidell broadcasting from London with the only reliable news of the day, as Goebbels’s propaganda machine churned out its incessant lies.

In fact,  as competitors from CNN to Sky to Fox entered the market, the BBC  always managed to retain its name as the world’s number one reliable news source in the broadcast media. A quarter of a century after leaving the borders of that green and pleasant land, the BBC is still for me, in the words of WH Auden, “My north, my south, my east and west”.

Bond Girl – born 1926

However, a foul wind may be blowing through the Beeb’s corridors. There was the mildest hint at the spectacular opening ceremony of the London Olympics last weekend. In a move that would have done justice to the Beijing Olympics four years ago, the allegedly Marxist director Danny Boyle managed to ignore the Empire (too insulting to some) and  World War II (too insulting to one) even though, thanks to the former, London is today the most truly cosmopolitan city in the world and, thanks to the latter, it was not difficult to find a site for the Olympics in East London since the Luftwaffe had done a pretty good demolition job seven decades earlier. Meanwhile, Boyle took  neatly choreographed digs at some British sacred cows – the Queen and the BBC among them.

Bond Girl – born 1925

Few non-Brits or those under 40 would have paid any attention to a flash of legendary BBC weather forecaster Michael Fish from 1987 publicly informing a woman who had called that day that she need not worry about a rumoured Hurricane on its way to Britain – you see, there had not been a Hurricane in Britain for some 300 years. Well, when I woke up the following morning and ventured outside, I discovered  that a tree had taken root in my neighbour’s roof and the street was littered with debris. Miraculously, the Hurricane – hitting around 3am in the morning – had killed nobody.

The BBC’s continuing fall from papal infallibility came home to me a few weeks ago when they ran an item on the news declaring that, according to a new study, at least $21 trillion of assets are being managed in tax havens. The item went on to explain that this was bigger than the US and Japanese economies combined and this tax black hole could solve lots of the world’s economic problems. We were told that the study was written by James Henry, former Chief Economist of McKinsey and Co for the influential Tax Justice Network.  And to make sure that the BBC would be viewed as thorough, they even interviewed a British tax expert who said that, while he could not disprove the figures, they seemed very big (rocket science collides with taxation once again).

His brain hurts

As an international tax geek this item was clearly of real interest to me so, hard-wired with my 20th century education that insists I independently check all facts, I went searching for the influential Tax Justice Network and this important study. Well, the website can best be described as the on-line equivalent of “Behind the wash basins at Waterloo Station”. Getting a real feel for who and what this organization purports to be was not easy (although I think I got there in the end). Most worrying of all, the study “The Price of Offshore Revisited” was not yet available. What was there (after a virtual treasure hunt) was a  brief press release which the BBC seemed to have quoted faithfully and mindlessly. Taking a look at the BBC website version of the item, I realised that the tax expert consulted as possible counterweight to the report, had clearly seen even less than the BBC. All he seemed to be saying was – “Blimey, that number is too big to make sense”.

I kept revisiting the site in search of “The Price of Offshore Revisited” until, last week – Eureka! – I found it , albeit off site. Mr Henry’s study was, indeed, interesting reading  and he is clearly a serious dude. While he arrives at some interesting conclusions, including that – in the absence of an offshore industry – emerging nations that are currently debtor nations would turn into creditor nations (which, Mr Henry, I don’t think would have a causal effect on credit unless, horror of horrors, exchange restrictions were imposed or, as you seem to discount, material sums found their way back as investment in the source country), his central thesis is something known to everyone – that the amount of tax being avoided or evaded in emerging countries would potentially have a major positive impact on their economies.

One-man balance of payments problem

I took something else away from this study, however. It is a regular chant of the Libertarians that use of offshores in tax avoidance (as opposed to tax evasion) schemes is highly moral since any diversion of funds from Big Bad Government to private hands will increase the efficiency of the economy. Even leaving aside the specific woes of emerging countries stripped of basic tax revenues it appears, according to the report, that money parked in offshores is generally invested in low-risk investments – if a wealthy investor wants to take risks he is happy to do that in the full view of his government (of which, he might be a member). So, while these trillions of dollars may serve to lower interest rates in the world economy they are essentially crowding out private investment by pension funds, insurance companies etcetera that need low risk investments while depriving the world of much needed risk capital – potential “creative destruction” that  Joseph Schumpeter declared so critical to the future of a free market economy.

Overall, the BBC, along with some American news companies that picked up the story at the same time,  did a pathetic job here and would have been well served to wait for the report. It is perhaps not a coincidence that the BBC has adopted an American term in recent years: “BREAKING NEWS”. As an expatriate who relies on the BBC, would it be too much to ask that it keep the News WHOLE?

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