2006 September » Tax Research UK

The more you have the easier it is to avoid tax

Sep 292006

Take this story from Forbes, for example. As they put it:

Why pay tax if you don’t have to? Thomas Siebel used a corporate beast with the colorful name “horizontal double dummy” to avoid a big tax hit when he sold his Siebel Systems to Oracle (nasdaq: ORCL – news – people ) this year. Worth $1.5 billion and No. 242 on our rich list, Siebel sidestepped a capital gains tax bill of at least $58 million by employing the perfectly legal device. His Siebel stock was valued at $488 million at the time of the $5.8 billion merger.

I wonder what good that $58 million might have done? And I bet it’s hardly made any difference to his own perception of wellbeing.

Of course government’s don’t always spend their tax receipts well. But arrangements such as this don’t do society any good at all. And even Forbes seems to realise this.

Technorati : tax avoidance

This is so bad it just has to be shared

Accounting 2 Responses »

Sep 292006

What were Ernst & Young thinking of when they created this?

What are we meant to think of Ernst & Young?

Thanks to Dennis Howlett for the link

Technorati : accountancy, ernst & young

Do sham trusts impose a cost on society?

Corruption, Guernsey, Jersey, Tax Havens, Trusts 1 Response »

Sep 272006

I’ve written a bit about sham trusts on here of late. It’s good to have the evidence therefore that they really do impose a cost on society.

The US Senate report provides some examples. But there are more. Take another example from the US, reported in the Amarillo Globe News.

A 68 year old local doctor named Stephen Miller has been sent to prison for 46 months there for tax fraud. The report says:

Evidence at the trial showed Miller entered into a scheme with Charles Matich in 1996 to use limited liability companies and sham trusts to conceal income and move it into offshore accounts. Most of the money was moved by Matich to the Channel Islands, court documents show.

Matich is a cooperating defendant awaiting his own sentencing on tax charges in San Diego.

Think of the story behind this. Here’s a man whose reputation is in tatters towards the end of his life. No doubt there’s a family torn apart by this. Which is one massive cost. And then there’s the sum of $970,000 he’s also been ordered to pay in restitution. And the cost of the trial. How do you calculate a cost to society of all this?

And it all arose because of sham trusts and the Channel Islands. No doubt those who took part in the email correspondence in Jersey published here not long ago would say that this is not their problem. They say it’s up to the rest of the world to stop its own tax evasion. But they should rest assured, they might say that, but the rest of the world does not agree.

Thanks to Dennis Howlett for the story

Economists offer no solution on tax

Tax management 1 Response »

Sep 272006

The EU held a seminar entitled ‘Corporate tax competition and coordination in the European Union‘ on 25 September and it was my misfortune to attend.

The seminar featured papers from Europe’s leading tax economists, but left me with the question I asked of them publicly during the day, which was “so what?” The reason for asking that was simple. The papers presented showed that the economic case for tax competition was not proven, but they thought it a good thing anyway; that profit shifting takes place, but only with regard to Germany (when everyone knows that this is clearly a false conclusion); that these economists are only able to build tax models of a single economy, but that they are then willing to extrapolate the results across economies, and so on.

Economics is said to be a dismal science. This day proved it. This was undoubtedly the best Europe can do on this subject. But all it proved was that economists have either got a long way to go, or they are offering the wrong criteria for assessing taxation. Or maybe both.

As I also said during the day, the economists all seemed to assume they lived in a world free of accountants, lawyers, trusts and other such obstacles to progress to economic equilibrium. Whilst they might like to believe this true, and can even see the welfare benefits of that being so, it isn’t. In that case a dose of reality is what is needed, and economics right now is simply unable to offer this, the required assumptions that underpin all its current analysis being so far removed from any form of reality that it is almost irrelevant to this debate.

Which is a sad indictment of the subject in which I graduated (but about which I thought much the same things nearly three decades ago).

What the OECD had to say in Seoul

Accounting, Ethics, Tax avoidance, Tax Havens, Trusts 1 Response »

Sep 262006

I was reminded by an email from Jeffrey Owens (head of tax at the OECD) that I have not given sufficient (in fact, any) coverage to what happened at the recent meeting of the OECD’s Forum on Tax Administration in Seoul.

The communique from the meeting said (amongst other things):

Our discussions in Seoul confirmed that international non-compliance is a significant and growing problem. Cross-border non-compliance can take many forms, up to and including outright tax fraud. Individuals have, for example, used offshore accounts, offshore trusts or shell companies in offshore financial centres or other countries to conceal taxable assets or income, as well as credit cards held in offshore jurisdictions to provide access to concealed assets; businesses of all sizes have created shell companies offshore to shift profits abroad often taking recourse to over or undervaluation of traded goods and services for related party transactions and some multinational enterprises (including financial institutions) have used more sophisticated cross-border schemes and/or investment structures involving the misuse of tax treaties, the manipulation of transfer pricing to artificially shift income into low tax jurisdictions and expenses into high tax jurisdictions which go beyond legitimate tax minimization arrangements.

Well, I agree with that.

In which case I’m also pleased to note that they agreed to:

(i) Further develop the directory of aggressive tax planning schemes so as to identify trends and measures to counter such schemes.
(ii) Examin(e) the role of tax intermediaries (e.g. law and accounting firms, other tax advisors and financial institutions) in relation to non-compliance and the promotion of unacceptable tax minimization arrangements with a view to completing a study by the end of 2007.
(iii) Expand its 2004 Corporate Governance Guidelines to give greater attention to the linkage between tax and good governance.
(iv) Improv(e) the training of tax officials on international tax issues, including the secondment of officials from one administration to another.

I’m especially pleased about point (ii). Where Senator Carl Levin has gone the OECD is now going. This is excellent news. It really is time that the professions realised it was time to reform their act, before its too late.

But will they listen?

Plugging loopholes in the EU Savings Tax Directive

Corruption, Tax avoidance, Tax Havens 1 Response »

Sep 262006

As ever, accountants are seeking to exploit any loophole they can find in taxation law and regulations.

One of the more recent wheezes is to invest offshore in accounts compliant with Islamic Sharia law. Under this law interest cannot be paid, but its not uncommon for bankers to now offer ‘profit sharing’ opportunities to Islamic clients which just happen to pay a return exactly equivalent to current interest rates.

The issue that’s being exploited in this? Well, the EU Savings Tax Directive applies to interest but not to profit sharing, so if profit sharing is offered disclosure of income earned does not have to take place to domestic tax authorities and nor is there a tax deduction on the payment being made from a tax haven. Such accounts are not restricted to Moslems and it seems possible they are now being marketed for tax evasion (there being no other reason to seek non-declaration).

I have a very strong suspicion that this use is not consistent with the Islamic faith.

For those who are serious about money laundering……

Corruption, Guernsey, Jersey 1 Response »

Sep 262006

The Tax Justice Network in Jersey visited France at the weekend. One of the people they met was a bank manager with a large French bank. He told them:

“We are very vigilant about money laundering‚Ä¶ we don’t accept any monies coming from the Channel Islands.”

Enough said, I think (and thanks to Chris Steel for the anecdote).

The UK government just doesn’t get it

Corruption, Tax Havens 1 Response »

Sep 242006

The Independent on Sunday covered the Carl Levin US Senate report today. The comment given to them by the UK Treasury is the most telling part of the report.

What’s astonishing is that the UK government persists with the myth that it is tackling tax abuse simply by dealing with it at the personal and corporate levels. Of course we agree that is important, and welcome what they are doing. But the question has to be asked, when will they deal with this at the systemic level?

Last Sunday’s leaks from Jersey show how endemic this abuse is in the offshore territories for which the UK is responsible, and indeed in UK tax law, where the domicile laws continue to be an abuse to other nations. And yet the Treasury appears to deny this.

Until they recognise that this is issue is not plugging leaks in the tax system, but changing it so that it is much harder that such abuses happen we will continue to criticise the UK government for its lack of action in this area. And so will others, as is only too obvious from another story in the same paper today.