Tax Break

John Fisher, international tax consultant

Archive for the tag “Tax humor”

Trust the taxman?

Perhaps not as bumbling an idiot as he looked…

My first suspicion that authority wasn’t all it was cracked up to be was at the age of 10, when I saw Lionel Bart’s newly released Oliver! Between the catchy numbers and faux-dirty actors there were two clear messages – the inhumanity of the workhouse system and Mr Bumble’s ‘The law is a ass, a idiot.’

Workhouses had blessedly long gone even then, but I have had many occasions in my long career to echo Mr Bumble’s sentiment. And if Dickens meant the term ‘ass’ in its asinine sense,  I am sometimes tempted to go with the American usage.

There have been many occasions when a sloppily drafted law has been saved by the tax authority, with liberal and, sometimes, downright anarchical interpretations that could only be strictly justified by a completely new interpretation of the letters of the alphabet used in the drafting.

There are often a lot more forms than substance

But, more often than not, it is not the case. While they will invoke ‘substance over form’ in incidences to their advantage – fairly confident that the courts will back them up if matters get that far – the authorities will fight hammer and nail to impose the letter of the law, hiding (possibly fairly) behind the excuse that they cannot ignore the written word.

And, just occasionally, they go a step too far.

If we are to believe the myriad reports of a case at the end of July, one of those steps is on the way.

I won’t dwell on the details of the case which has already been reported to saturation point, but suffice it so say, trust tax law – largely legislated with effect from 2006 – generally considers the contribution of an asset to a trust as a non-taxable event (a gross oversimplification, if ever there were one). The problem is that, for purely anachronistic reasons, Israel has a separate law for the capital gains from local real estate transactions. It, and its predecessor, simply predated Israel’s taxation of capital gains and for reasons I sadly suspect many of us understand, the situation has never been put right. The real estate law stayed silent beyond some existing archaic provisions that were essential for real estate transactions. The taxpayer argued that the transfer of real estate to a trust should not be a tax event – in logical line with the treatment of all other assets, as must have been the clear intention of the legislator – and the tax authority disagreed.

Blessedly, the committee appointed under the law  to hear the appeal of the taxpayer, comprising two respected accountants and a senior judge, found in favour of the appellant. The ruling was reasoned and well-presented doing what I, in my recurring naivety, thought  was what the tax authorities found difficulty with – filling in by stealth the missing bits of the law that should have been, but were not, there.

I assumed that would be it. The tax authorities were given a peg on which to hang their coat, and the world could carry on. The judge even recommended that the legislature add the relevant provisions to the statute so as not to permanently be required to rely on case law.

Dickens was quite obsessed with the failings of the legal system

Well, according to the professional ‘press’, I got it wrong. The tax authority is expected to blow a raspberry at the decision and pursue an appeal in the High Court.  Apart from the relative certainty that they won’t win, I don’t begin to understand what they are reported to be contemplating.

It would simply not be fair.

Those lazy-hazy-crazy days of summer

Read more…

An actor walks into a Bar

Not all Penguin books made it to court

At Penguin Books’ 1960 obscenity trial in the matter of DH Lawrence’s steamy novel ‘Lady Chatterley’s Lover’, the prosecuting counsel famously asked the jury of randomly picked men and women, ‘Is it a book that you would even wish your wife or your servants to read?’ The jury found in favor of the publishers, and both the judge and prosecuting counsel were laughed out of court, as out of touch with the modern world.

The appeal filed last week by supermodel Bar Refaeli’s lawyers against a decision of an Israeli District Court to side with the tax authorities in her disputed claim of  non-Israeli tax residence, appeared to suggest that the judge had also not learnt to move with the times. It argued that, had Refaeli been married to American actor Leonardo DiCaprio, rather than simply living with him in the U.S., there would have been no question that her center of life, and hence tax residence, was outside Israel. His Honor’s failure to recognize her ability to maintain her Israeli connections – while not her residence – in a world of social media, cheap telecommunications and affordable air travel was also seen as archaic.

However, as opposed to the Penguin prosecutor, who really did seem to have fallen out of the Downton Abbey woodwork, the judge was receiving some pretty unfair press here.

Hardly the first actor to walk around in a hat

When he was trying to get to the bottom of the couple’s relationship, the judge heard quite a bit of bizarre stuff from witnesses including Refaeli’s mother and a bosom-friend actress, whose embarrassing incoherence on the obscure subject of DiCaprio’s ubiquitous hat, as well as his lack of intimate communication with the supermodel’s friends, left me wondering whether actors are programmed never to come up with their own lines. (This, of course, was not a problem for Refaeli, who – thanks to the way she is programmed – doesn’t need to communicate verbally at all).

The issue that really needs to be examined is whether superstars should be treated like the rest of us at all when it comes to taxes.

Once upon a time, it was the aristocracy that filled the ranks of superstardom. Monarchs, who until not so long ago were considered to rule by Divine right, have not traditionally paid taxes. The Queen (there are many queens, but only one Queen) has paid some tax VOLUNTARILY since the early nineties, but she could change her mind if the housekeeping bill got out of control. Here in Israel, with a wink to the British Mandate, the president is exempt from tax on his presidential income.

Back in 1923, Virginia Woolf’s Mrs. Dalloway wondered excitedly– along with everyone else in sight – whether the mysterious occupant of a blacked-out limousine was the Prince of Wales, Britain’s future king. Faced with a similar scene in 1999, the Mrs. Dalloway of Michael Cunningham’s tribute novel, ‘The Hours’, hoped it might be Meryl Streep.

Divinity has passed to the superstars. Their irregular conjugal behavior – which the judge found hard to comprehend – is perhaps because they are extra-terrestrial beings, flitting from country to country and not bound by the rules of us mere mortals.

Even the OECD’s  model convention on double taxation singles out sportsmen and entertainers as the only professions with a specific article (17) to deal with their out-of-the-ordinary  international tax issues.

A sensible solution, based in part on Article 17, might be to only tax these gods and godesses in the countries where they work – one day here, one day there etc., without assigning them a tax residence. The downside would be that – thanks to those in my profession – before long, all movies would be made, and sports events held, in countries where there was no income tax.

Where shall we do this scene?

The movies could get over the obvious problem of ‘location, location, location’ with the latest CGI technology. But what about sports? Have you ever thought about zero income tax Qatar for the 2022 Football World Cup?  Not a blade of grass or pint of beer in sight. But, there will be. In abundance.

In the absence of  a foolproof alternative, it is probably wise to treat them like the rest of us. I believe that is what the judge was trying to do.

 

Fair fight?

The tough guys are in charge

Underdog Andy Ruiz’s technical knock-out of world heavyweight champion Anthony Joshua in their fight on June 2 was one of sporting history’s great surprises.

Similarly, civil court cases against the tax authorities are rarely won by the underdog, generally ending with a knock-out – technical or otherwise – of the assessee.

There was an exception back in February (I will explain shortly why the item is topical). It involved three flesh-and-blood Israeli residents who claimed a capital gains tax reduction on the sale of shares in the company they controlled. The basis of the claim was an article in the tax code declaring, in certain circumstances, that the part of the gain  reflected by retained profits in the company would be taxed as if those profits were distributed as a dividend. The company in question had a special tax status that offered a reduced rate of tax on dividends. The tax authority said ‘No Way Jose’ (pugilism and wresting belong to the same family of sports), and they ended up badly matched in the ring.

That’ll tell ’em

The advantage that the tax authority’s lawyers had going into the bout was that this particular article was enough to leave the fittest of fighters punch-drunk. It had been updated twice in the early years of this century – in both cases in response to serious tax reform – leaving assessees and their advisors swaying in confusion.

But, the referee was having none of it. The assessees convinced the referee with their parrying of a barrage of alternative arguments. And it was the referee himself who applied the killer blow,  sending the authority crashing onto the canvas.

The authority had declared in a non-legally binding circular some years back, that – while companies selling the shares of other companies with special status would benefit from the reduced ‘dividend’ tax, individuals would not. Earlier in his judgment, His Honour had already dismissed the entire argument as nonsense, but here was a circular offering no explanation or excuse for the bald-faced indefensible differentiation. Hoisted with their own petard. Count to ten, and out?

Not quite.

The tax authority sought leave to appeal. But, as they gathered their teeth from the canvas, they must have realized that – however low their chance of overturning the reasoned judgement that had floored their arguments one by one – they would be pummeled over their out-of-the-ring circular.

So, in the evident hope that nobody would notice them changing sports – they moved the goal posts. Earlier this month, the authority issued an uncharacteristically terse notice to tax representatives stating that companies selling their investments in other companies with a special tax status would not longer be entitled to the special dividend rates.

While – when the appeal is heard –  that may take the sting out of the judge’s most humiliating punch, there remans plenty more there to sink them.

Don’t worry, he won’t notice a thing

In any event, the authority’s action reeks of chutzpa – doubled by the fact that when  queried about it, they claimed not to understand what the fuss was about as the clarification was about companies rather than individuals There is sophistry, and there is circumlocution.

Were I the judge handling the appeal, I would invite the assessees to join the authority in the  witness box and give them leave to sort it out among themselves.

Who stole the punch line?

Not all double acts know they are funny

I am rarely amused by the pronouncements of the Israeli tax authority – au contraire, they often rile me. But, last week a public ruling had the effect of diverting my mind to the comedy double acts that had their origins in America’s Vaudeville and Britain’s Music Halls. Laurel and Hardy, Abbott and Costello, Morecambe and Wise, The Two Ronnies. The list goes on and on.

The ruling concerned an oldie but goodie in the international VAT sphere. It contained absolutely nothing new (I will rant about that shortly – I am still at the amused stage), but did serve as a reminder to international tax advisors everywhere (in Israel) that corporate tax planning cannot be done in isolation. Corporate tax and VAT are a double act, with the direct tax as the funny guy, and the indirect tax as the straight man. If an international tax advisor does not deal with the two in tandem, they might just as well send in the clowns.

stan-laurel-1

I just don’t get it

There is a peculiarity in Israeli VAT law not shared – to the best of my knowledge – by the EU or other major operators of the tax. Services provided to foreign residents who are outside of Israel generally attract zero-rate VAT (a doublespeak way of saying there is no VAT). However, there are exceptions – particulary where the service agreement benefits, in addition to foreign residents, Israeli residents. And, as the 17% VAT is on the gross amount, and as the foreign residents cannot reclaim the VAT in the absence of a taxable presence in Israel, advisors need to pull their hair out thinking of structuring solutions.

The matter considered by the authorities involved a local company operating a Hebrew website to provide marketing services (and a little bit more) to foreign suppliers of goods. They charged a commission  for this service to the foreign suppliers. The  authorities were asked to rule that the charge should be zero-rated, as it was a service to a foreign resident. Despite also being  to the benefit of the Israeli resident customers,  the law has a  Get Out of Jail Free card –  VAT is zero-rated  if the marketing charge is included as part of the customs value of the subsequently imported goods (it wouldn’t work for imported services, and hence the need for careful structural planning in this sphere).

The ruling makes the zero rate conditional on proving, inter alia,  that the price of the imported goods is included in the import price. “Nothing wrong with that,’ I hear you mutter. Aye, but there’s the rub. There is a reason the tax authority has a ruling process – it provides certainty where there was doubt. And there is a reason the tax authority publishes condensed and sanitized versions of those rulings – so that the certainty exists across the board. All very noble.

95266_0

Have you declared the marketing charge?

The published ruling provided no information that was not known already. The law – as represented in the ruling – is entirely clear. What has never been clear – and why I read this document with keen interest – is: ‘What constitutes proof that the service is included in the value of the imports?’  ‘Ah! I hear you say; it is obviously included because it is one of the costs directly related to the sales to Israel’. All I can say is, that it is at times like this that you need a sense of humour. In discussions with the authorities over the years, they didn’t necessarily think it was so obvious if there wasn’t a specific reference in the import documentation to that element of cost (‘included in the import price’ – get it?)

I want to see them get out of that one.

So, if – as I suspect – the ruling request was seeking clarity on that issue, either it was provided and then excluded from the published summary, which would be scandalous; or it was not given at all, which would mean the whole process was a waste of taxpayers’ money.

Either way, it’s time for the tax authority’s scriptwriters to have a rethink about their material.

Watch this space

The Fast Show Special

The Rolls Royce (alright, Bentley) of tax havens

The proud boast of the John Lewis Partnership Department Store chain, ‘Never knowingly undersold since 1925’, is less than impressive when compared with Switzerland’s record on international tax. It has never been knowlingly undersold since at least 1872 when one of its cantons signed the world’s first every double taxation treaty. I thought of Switzerland when enquiring about a new car last week. As the model that interests me is sold in two local showrooms, I tried both. One was highly professional and even told me the ‘real’ statistics for fuel consumption, as well as which model would best suit my needs. The other went through the usual car salesman’s pitch and, before signing off, blatantly declared they would undercut anything the other guys were offering. The search goes on.

sa16795xavtx1000

Anything you need..

Throughout my career, Switzerland has been enormously useful. Holding companies, domicile companies, principal companies, mixed companies and finance branches have provided solutions for international groups looking to park some of their profits offshore without the need for sailing out to some God-forsaken island in the Atlantic of Pacific where, once upon a time, the local representative might have been cooked for lunch. However, as international competition for corporate tax tourism picked up in recent decades, the Swiss had to up their game. There were even international visits from  respectable firms of Swiss tax advisors offering private rulings involving somersaults of tax logic. Nothing particularly strange about that. It was the fact that they were accompanied by  representatives of their local cantons’ tax authorities, smiling benignly.

And then came the world’s Damascene Conversion to fairness and transparency in the international tax sphere. For Switzerland it was more a case of the Spanish Inquisition. With nowhere to turn, where would they would they go from here?

Well, the response has been sometime in coming, and thanks to 50,000 troublemakers forcing a referendum on the issue a couple of weeks back, it will still be coming until at least May. But, the proposal approved by the legislature late last year does away with all those different types of special company and says goodbye to private tax rulings. In their place come ‘reduced’ combined federal and cantonal tax rates centred around 13% to 14% and a string of other provisions.

It is the string of other provisions that has left me checking the internet for booby-trapped timing devices.  Switzerland just has to stay ahead of the pack. Call it Swiss DNA. In the modern world 13% to 14% just ain’t going to swing it. (They couldn’t go any lower – as a nation that doesn’t sport beaches and not much else, they do have to worry about funding their welfare schemes. As it is, employee/employer taxes have had to be upped to cover the loss of corporate revenue). There is provision for step-up of assets for companies migrating to Switzerland (some nice planning available there) and the write-off of hidden reserves for companies coming out of the old regimes. But, the latter only lasts five years and Switzerland presumably hopes to live a bit longer than that. Notional Interest Deductions on capital are thought to only apply to one canton. Beyond that, patent box and R&D treatment are pretty standard.

quote-in-italy-for-thirty-years-under-the-borgias-they-had-warfare-terror-murder-and-bloodshed-they-orson-welles-277430So what are they going to do long-term? Switzerland, of course, is not just a pretty rock-face. Three of the largest fifty companies in the world are headquartered there (and I don’t just mean tax headquartered). The tourist industry  is massive. And there is, of course, its impressive watch industry. However, 75% of the economy comes from services. Banking secrecy has been permanently compromised, and tax tourism seems to be following suit.

The Gnomes of Zürich must have something under their hats, surely? If there is one thing the Swiss are not, it is cuckoo.

 

The Celtic Tiger changes its stripes

boris-johnson-yes-minister-main (1)

I can’t wait for 2046

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

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

The (undisputed) story:

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

zipperbeach-thin

Ireland is quite a distance

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

And now, the conspiracy theory:

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

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

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

main-qimg-13926df3433008a9ddfe757c1707b676

And where do you think you’re going?

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

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

 

Double Dutch

Another way to keep the tax bill downBack in the days when there were twelve pence to a shilling and twenty shillings to a pound, there was an urban myth of a retired Maths teacher who runs into his worst student as the latter climbs out of a Rolls Royce. The younger man embraces his old nemesis, proceeds to thank him for the great Maths education that enabled him to succeed, and declares: ‘I buy ties for a pound, sell them for one pound ten shillings (Google translate: £1.50), which means a ten per cent gross profit. My after-tax earnings are amazing’.

As 2018 was drawing to a close, Holland appeared to be having a similar problem with basic Maths in meeting its commitments to the European Union, albeit that the EU had itself been guilty of gross bureaucratic circumlocution.

skool1

How will the EU manage with the English language when the UK leaves?

In 2016, the EU issued its ambiguously entitled, ‘Anti Tax Avoidance Directive’, which might have been the credo of our low-taxed tie entrepreneur had it not been for the fact that the text made very clear that this was a pro-tax directive aimed at ensuring there was no avoidance. It was however a warning that members would be dealing with poor-language damage control. The Directive directed that interest limitations, exit tax, hybrid arrangements and controlled foreign corporations (CFCs) all had to be dealt with in individual national legislation by the end of 2018. So far, so clear.

As summer gave way to autumn (and, in some cases autumn gave way to winter) member states seemed to inexplicably vie for last place in the legislating stakes, despite having no ultimate choice – even the hapless British, who were hanging off the edge of the EU, had to comply.

cubanmissilesgraph

There are other ways of solving the problem of offshore jurisdictions

As the stragglers came on board, thanks to the abovementioned Dutch, there was one curiosity deserving attention. The Controlled Foreign Corporation (CFC) has been with us since the week of the Cuban Missile Crisis (CMC) in October 1962, when John F Kennedy (JFK) signed the US version into law. In a nutshell, despite jurisdictions adopting various incarnations of CFC, the underlying nous is that certain income either parked in or diverted to a low-tax jurisdiction is to be taxed on a current basis in the hands of the parent as if a dividend has been distributed.

One of the features common to most CFC regimes is that the calculations are objective – identify the item and tax it. The EU version offers two options to choose from. Option A is the traditional method – identifying specific types of income, while Option B has CFC provisions stepping in where state-of-the-art Transfer Pricing isn’t satisfactory. Option B is clearly subjective, and seems to beg to be ignored (when was the last time a company volunteered that its transfer pricing wasn’t up to much?)

Common to both methods, however, is the ownership level triggering CFC, and the rate of tax below which the CFC legislation can apply. That last point is where the Netherlands  appear to have lost track of the numbers, and the EU to have lost track of its mind.

saw in half

I think I’ll stick with the mind reader

We all surely remember the ‘great’ mind-reading trick of our youth – telling some unwitting stooge (usually a younger brother) to ‘think of a number, double it, add X, divide by two, and take away the number you first thought of’. The answer, due to the rudiments of Mathematics, was always X/2.

Well, the Directive establishes low-tax for CFC purposes by the following calculation:

‘The actual corporate tax paid on its profits by the entity or permanent establishment is lower than the difference between the corporate tax that would have been charged on the entity or permanent establishment under the applicable corporate tax system in the Member State of the taxpayer and the actual corporate tax paid on its profits by the entity or permanent establishment.

Now, as hard as I try, I  cannot interpret this gobbledygook as anything other than a horribly complex and roundabout way of arriving at half the parent company’s corporate tax rate. Almost all the EU member countries appeared to come to the same conclusion. However, not the Dutch. Perhaps the official Dutch translator in Brussels was drunk or stoned, but after a lot of bellybutton watching in recent months over an initially proposed 7%, they finally plumped at the eleventh hour for 9%. Despite wrestling with every combination of current and proposed higher-income and lower-income Dutch corporate tax rates, I could not justify 7% or 9% when fed into the above ‘equation’.

So, what is happening? As far as I can see – nothing. The EU bureaucracy is in Christmas hibernation, with instructions only to be aroused from its slumber by occasional wake-up coughs from the tiresome British.

It will be interesting to see if, now we are in the New Year, anybody notices.

Happy New Year – especially to my Dutch friends.

Tales from the Crypto

G20-ARGENTINAFAMILY-PHOTO (1)

There were always a few kids in the class who refused to look at the camera

Kurt Vonnegut famously said: ‘True terror is to wake up one morning and discover that your high school class is running the country’. The G20 summit in Buenos Aires earlier this month spawned a myriad online articles about the international taxation of cryptocurrencies (Bitcoin etc). Intrigued by the efforts of my ‘classmates’ (most of them belong to my generation) to get their heads around a difficult subject, I delved in only to find an even truer terror: ‘To wake up one morning and discover that your children’s high school class is running the online economic press’.

writing-direction-japanese-vertical-horizontal

You could forgive the journalist for missing the nuance of the paragraph break

My suspicions were aroused when I noted that each and every article relied on the same statement of a Japanese news agency ‘drawn’ from the final declaration of the summit. To anyone with a modicum of tax knowledge,  it was clear that the Japanese rumour-monger had got their taxes in a twist. With immense determination unknown to the younger generation, I spared no effort in googling: ‘G20 Buenos Aires final declaration’, the text of which, lo and behold, appeared before my very eyes. A further 5 minutes spent actually reading the entire thing (f-i-v-e whole minutes!) produced the answer. A bland paragraph  including reference to the need to regulate crypto-assets against money laundering and terrorism, followed by another bland paragraph about BEPS that even my classmates could understand. Somebody clearly forgot to tell the Japanese reporter that there is a reason for paragraph splits in the English language, and somebody forgot to tell the on-line reporters – who it appears don’t know what it is to get off their backsides for a story – that they should not blindly rely on every piece of fake news they read online. Bottom line – the G20 summit was silent on the taxation of cryptocurrencies.

46684BC100000578-5088405-image-m-54_1510825995710

At least the Germans have always understood what money is

In the meantime, cryptocurrencies have been in free fall, and the world’s tax authorities may be about to regret their approach. Although cryptocurrencies have been around for a while, tax authorities were slow to sink their teeth into them. By now, possibly encouraged by price increases in 2016 and 2017, most jurisdictions have come to the conclusion that they are legally assets rather than currencies. As such, the exemptions that often exist  for individuals on exchange rate differences do not apply. In general, capital gains tax will be charged on realized gains (most authorities have at least managed to convince themselves that VAT should generally be avoided).But there is still confusion – as late as October 2018 an IRS Advisory Committee asked for certain clarifications from the IRS, while possible British taxation runs right across the spectrum depending on circumstances. Germany has a slightly different approach, having recognized them as money. At the same time, Israel took a literal view of the definition of currencies in its tax ordinance (cryptocurrencies do not qualify), and is there in the conservative pack.

הורד

And what’s wrong with gambling?

The catch for tax authorities is that, by insisting gains are taxable, they have to recognize losses as allowable – and the losses in 2018 have been horrendous. If that G20 paragraph on regulation is properly acted upon, the days of wild fluctuations may be numbered in 2019 – and the pain of what was a bad gamble by individuals on something totally speculative, will be irrevocably shared by national treasuries. Maybe it is time to pass the baton to my grandchildren’s generation.

Yes, Minister

yes_minister (1)

Keep it simple…

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

For all I know, she was right.

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

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

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

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

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

business-tax-law-e1334255600803

…or not.

 

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

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

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

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

 

Post Navigation