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Archive for the tag “Trust”

No flies on them, mate

Some people will go to extreme lengths not to visit Australia

Some people will go to extreme lengths not to visit Australia

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

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

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

Just trying to do the right thing

Just trying to do the right thing

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

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

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

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

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

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

Reach for the sky

Dutch landscape. Anyone for Mars?

Dutch landscape. Anyone for Mars?

A  story  about a Dutch company that did the rounds of the world’s press on April 23 got me checking whether the Netherlands, ever the laid back pot-smoker of Europe, celebrated April Fools’ Day a few weeks late. In a grand press conference it was announced that candidates are invited to apply for a one-way ticket to Mars sometime in the next decade. The project is to be funded by  Reality TV rights. Welcome to the 21st century.

While Britain has a Royal Society for the Prevention of Cruelty to Animals, it does not have a Royal Society for the Prevention of Cruelty to Dumb Humans, so I was not surprised when the BBC World Service cornered their prey a few days later. It turned out that one of the first people to put their name down for the flight was a young man with a distinct Lancashire accent. Now, if you are not a Brit you should understand that, while the BBC World Service has (highly competent) presenters from Uganda, South Africa, Canada and South-East England, it does not have many Lancastrians on its books. Someone searching for a broad Lancs accent on the BBC would be better-off tuning into Premier League Darts or The World Snooker Championship. This is entirely unfair to natives of Lancashire who are, of course, every bit as intelligent as everybody else,  but it is an unfortunate urban fact.

Asked why he had applied, the Lancashire lad mentioned the appeal of Reality TV (OMYGOD) and then went on to talk of a new Frontier. At this point I clasped my steering wheel tight as I zoomed along the highway and braced myself for the inevitable G Force comment that was  about to pin me to the back of my seat. And it did. He calmly told the interviewer that he wanted “to boldly go where no man has gone before”. Aaagh!

Talking to Israeli tax officials over the last week, all that was missing was that ping-pong-ball-stuck-in-the-back-of-the-throat Lancashire accent. Included in the just released preliminary draft of the Government’s Omnibus Bill were the first significant adjustments to the international tax provisions of the Income Tax Ordinance in 10 years.  Listening to these highly intelligent people one could have been forgiven for thinking that they had just proposed the most radical shake-up of the tax law this side of the turn of the Millennium. A new frontier.

In reality, the amendment is less Starship Enterprise and more Apollo 13; less Captain Kirk on the ship’s panoramic deck and more Jack Swiggert trying to patch up the mess in the service module.

Come out with your tax opinions above your heads!

Come out with your tax opinions above your heads!

The main thrust of the proposal is in the area of CFC (Controlled Foreign Corporations) where many of the gaping holes in the legislation will be closed. As regards the fundamentals of the CFC regime,  on the one hand, the law will be expanded to include companies with more than a third (previously a half) passive turnover or profit while, on the other hand,  the CFC cut-off tax rate will be reduced to anything above 15% (currently 20%). The sad thing is that they did not use the opportunity for a clear re-think of the desirability of the law in its present format. It would have been nice to see some bold proposals rather than the S.W.A.T team peering nervously around every corner in search of possible tax avoidance schemes as they inch towards their target.

There is a change to the calculation of Foreign Personal Service Company income which closes a much abused loophole using companies in treaty countries, and a very controversial proposal to require new residents to report their foreign income. Under a 2008 amendment new and returning residents are exempt from tax on foreign income for 10 years. Until now they have also, perfectly reasonably, been exempt from reporting such exempt income. Perhaps not much longer.

But the daddy of them all is the proposed change to the 2006 Trust provisions. The Trust provisions have, since their inception, given rational  advisers a headache. They were a valiant and, largely successful, attempt to prevent tax avoidance but, in their over-enthusiasm, left Israel taxing foreign trusts when there was no connection to Israel not to mention other weird and wonderful outcomes.

The new provision, although  seeking to tax previously untaxed income from trusts settled by bona fide foreign residents,  offers a glimmer of hope regarding those trusts where a settler dies and all beneficiaries  depart for other shores.

Somebody has been reading the wrong book

Somebody has been reading the wrong book

The trouble is that, while they have had since 2006 to think about trust amendments,  the authorities have managed to come up with some of the most ill-conceived mis-drafting seen in years. Together with colleagues from other accounting and law firms, I have been trying to join the dots all week. It has been like trying to get a sleeping bag back in its sleeve – every time you think you are there, something bulges out somewhere else. Perhaps they would do well to take a leaf out of the Beatles’ book; it is said that they composed some of their best lyrics when they were stoned.

I am reminded of a Yiddish expression which, roughly translated, goes: “He spelt the word ‘Noah’ with seven mistakes”.

It will  be interesting to see if the authorities get all the bugs sorted out in  the formal draft. In the meantime: “Houston, we have a problem”.

Waltz or requiem?

Trust? Yes I could set you up one of those for a suitable fee

I was in Vienna last week for a European tax conference. Inevitably, the Eurozone crisis loomed enormously large but, in addition to the crop of European experts, there were speakers from China, Africa and the US to remind participants that Europe is not an island. Throughout the two days there was one word that refused to lie down. It kept popping up in just about every speech or comment. That word was “Trust”. The need to restore trust between nations in Europe. The need to restore trust between governments and their electorates. The need for trust in forming companies’ tax policies. The need for trust between tax authorities and taxpayers. The keynote speaker was a brilliant financial journalist, highly prominent in her field, with a PhD in Social Anthropology who set the tone for the entire conference.

Overall, the vision was remarkably optimistic. Faced with economic armageddon in Europe, EU nations from North and South will understand that they need to cooperate. With the stampede of government changes at the polls voters will regain confidence in the executive branch. Faced with the nagging protests via social media and Occupy the World movements companies will abandon over-aggressive tax planning and adopt ‘moral’ tax strategies. With the prospect of never-ending tax disputes and lack of certainty companies will come forward and expose themselves to real time tax audits while tax authorities will be put on a leash to stop them going for the taxpayers’ throats.

And they will all live happily ever after.

Not quite.

All men are created equal – but it doesn’t mean they are the same

In what I can only put down to western Europe’s post Holocaust obsession with, what itself can only be euphemistically referred to as, ‘political correctness’  everybody ignored the elephant in the room – and that elephant was cultural diversity. Different cultures have varying views on what constitutes the truth, fairness, morality – you name it. The only speaker I heard touch on the subject was the Chinese guest who suggested that companies’ approach to national tax authorities should depend on the nature of the executive, judiciary and tax authority in a particular country- but then until two years ago it was politically correct to be executed for tax evasion in China.

You can talk until the cows come home about building trust vertically, horizontally or three dimensionally – but, to put the matter in perspective, I would have happily challenged any of the speakers to convince the average Greek in the Street that he has a moral obligation to pay tax. For crying out loud, one of the  speakers was the geezer who wrote the Liechtenstein Tax Code which, although I have not yet set aside the 5 minutes  required to read it (rumour has it that he wrote it while traveling in an elevator), must surely be full of trust and  love to all men. Another guest was a former finance minister of Greece (I understand there have been quite a lot of them)  who, on the odd occasion he was coherent, expressed absolutely no remorse for anything that had happened and looked forward to  being bailed out by Germany, despite the fact that successive governments lied about their statistics.

Stunning! But Mozart must have turned in his grave

If, to survive, the Eurozone needs to look for a single European cultural standard, then surely Austria should lead the way. Austria, of course, is a synonym for culture. It is, simply put, a cultural paradise. What nation could be more appropriate?  A quiet economically strong country, its people are the epitome of politeness. From the minute I boarded the Austrian plane my ears were massaged with Strauss’s Blue Danube Waltz. The service was perfect. Viennese architecture is absolutely breathtaking and, as an American colleague commented to me while  we admired the Throne Room of  the Hofburg Palace , “We don’t get this in Miami”. Precisely. And the natural beauty, of course, only starts in Vienna.

Waydamminit!

Good bye! By 11am on November 11, 1918 the number of deaths had shot up from 2 to around 16,000,000.

While I sat last Tuesday in my hotel room thoroughly enjoying England’s richly undeserved win against the soccer representatives of the Thugdom of Ukraine (from which my grandparents fled a century ago), my mind wandered elsewhere.  While Ukraine is receiving much coverage for proudly co-hosting Euro 2012, didn’t Austria, in living memory, proudly co-host a slightly bigger competition- namely the Second World War? And for that matter, might the Austrians be responsible for that little contretemps attracting the title “Second World War”, since arguably if it wasn’t for them there wouldn’t have been a first one. And wasn’t it their president, the upright one-time Secretary General of the United Nations who was discovered to be a little too enthusiastic member of the Wehrmacht? And not one word of remorse from him or the country.  Even in the field of international taxation, in their own quiet way they have historically had one of the most brutally favourable holding company tax regimes in the developed world, grabbing what they could from the competition.

Greek workers taking a clandestine 5 hour lunch break

In short, Austria suffers from cultural schizophrenia. And maybe – just maybe – that is PRECISELY what Europe needs just now. And that is why the choice of Austria to stage the conference this year was so appropriate. Perhaps the other  members of the European Union – ignoring  Britain which surely won’t be there ten years  from now-  need to accept publicly the credo of German economic ethics while maintaining their own differing cultures at home.  They could take their cue from the Marrano Jews of Spain who chose conversion to Christianity over the auto-de-fe during the Spanish Inquisition but maintained their Jewish traditions at home in secret (although a cautionary word – that option did not work for the Jews in the 1940s). Alert readers will have spotted that this idea essentially represents Virtual Occupation. Given the history of the Continent, if the European project is not saved, Virtual Occupation may well be preferable to the alternative.

Next year’s conference is in Berlin.

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