2007 April » Tax Research UK

The Rich List

Domicile, Economics, Ethics 1 Response »

Apr 302007

Some have said I should comment on the Sunday Times Rich List. OK, if you insist. This says most of it:

When the Blair administration came to power in 1997, the wealth of Britain’s richest 1,000 stood at £98.99 billion. The £261 billion rise in the wealth of today’s top 1,000 represents a 263% jump over the past 10 years.

This explosion in Britain, and particularly London, has seen a sharp rise in the number of billionaires in the UK. This year we have 68 against 54 in 2006 and treble the number of four years ago, fuelled by the surge in the number of foreign billionaires enjoying Britain’s favourable tax regime. Only three of our top 10 were born in Britain.

That tax regime is, of course, the domicile regime. That other doyen of the hard left, the Daily Mail has this to add:

By comparison, the rest of the population has seen its wealth rise by only 120% during the Blair years.

And this:

Much of the surge in wealth comes from foreign tycoons lured to Britain by a generous tax regime.

I’ve looked for a comment that supports the domicile rule that allows this exploitation of the UK. I can’t find it right now.

So I’ll leave the final word to Larry Elliott of the Guardian:

The argument in favour of of the government’s hand’s-off policy to the rich is that the wealth trickles down to the rest of us. Mittal and Abramovich buy houses and cars, employ gardeners, lawyers, estate agents, caterers and so on. Better to have them spending their dosh here, in other words, than for them to spend it in New York or Paris. From this standpoint, it should not really matter that the gap between the rich and the rest is getting wider, because all of us are getting richer; moaning about the super-rich is simply the politics of envy.

But as Larry then notes (correctly):

[I]t is wrong to think that a Labour government can ignore the growing gulf between rich and poor that has been allowed to develop on its watch.

For a start, not everybody benefits from the arrival of the super-rich and their money. One reason house prices are unaffordable for those on modest incomes in London is that the market has been distorted by sales at the top. Moreover, the sort of jobs that have been created by all this wealth tend to be low-paid, low-skill jobs such as security guards and cleaners.

No evidence has been put forward to the contrary, ever, as I noted in the Observer this weekend.

So, I tend to agree with Larry that:

Times have changed. Voters don’t want to hear the pips squeak. Nor do they want “howls of anguish” [from the wealthy]. They wouldn’t mind the odd whimper of discomfort, though.

Except, on reflection I really can’t see why paying in accordance with the same rules as the rest of us should invoke any such whimper. But you can bet it would.

The UK is a giant hedge fund

Domicile, Economics 1 Response »

Apr 302007

I do, as so often, recommend Simon Caulkin’s column from the Observer this weekend. It, when combined with William Keegan’s column, made a refreshing page of reading. One paragraph did however stand out from Simon’s column, even if it is in turn based on a quote from another journalist:

As Anthony Hilton wrote in the Evening Standard last week, ‘the entire UK economy has become, in effect, a giant hedge fund with a massive one-way bet on financial services – and no Plan B for the day when the City goes off the boil.’ If and when it does, the costs of the government’s failure to understand the managerial economy will be high – for all of us.

I agree with both Anthony Hilton and Simon Caulkin, even more so because it’s this one way bet that has meant the UK has had to be a tax haven and has meant Gordon Brown has been too frightened (I use the word advisedly) to abolish the domicile rules.

Irish lawyer – dodging the EU Code of Conduct

Ethics, Ireland Comments Off

Apr 302007

Finfacts, one of the best sources of what is going on in Ireland, has reported:

Cruickshank, Ireland’s leading firm of patent and intellectual property attorneys, has warned the Irish Government that unless it urgently revisits its recent changes to patent tax laws, Ireland could be turned into a corporate tax haven, without creating any local value. It could also be faced with an economically disastrous drain of research and development activities to offshore locations.

This is in response to an EU requirement that Ireland remove a ring-fence where special rates of corporation tax relief were offered for income derived from patent royalties in Ireland.

So what is the good lawyer’s response to this obvious requirement (at least as far as EU law is concerned)? It’s not, as you might think to say that the new laws should be abolished as they obviously make no sense and that Ireland should instead trade on its real commercial advantages (which it claims to be be plentifold but in which it clearly has no confidence). No, he does instead say:

We believe that the only effective action is to take the operation of the incentive out of the corporate tax system and place it into the Irish resident personal taxation system. Here, it can be directed solely to inventors and individual patentees, and to shareholders of R&D or patent-holding companies who are resident for tax purposes. This way, there can be no incentive for a corporate to use this as a tax reduction measure, as they have no personal tax against which they can offset tax free royalty earnings.

Let’s be clear. This is not the whole story. The reason for saying this is in fact simple: the ring fencing rules to which the EU has referred in making its requirement of Ireland do in fact only relate to corporate taxes. Moving the advantage to personal taxation is simply a move to get round the EU Code of Conduct on Business Taxation.

Well, it might work for now. But I think it very likely that the response will be to extend the Code of Conduct to personal taxation. Then the cat will definitely be amongst the pigeons.

Holy alliance embarks on tax crusade

Development, Domicile, Ethics, Tax avoidance, Tax Havens 2 Responses »

Apr 292007

The above title comes from the Observer. As they say in today’s paper:

A holy alliance of church groups and bishops is demanding that Gordon Brown closes legal loopholes used by the super-rich to avoid tax.

Christian Aid, Cafod, Church Action on Poverty and the Church Council for Monetary Justice have all this weekend issued separate statements urging the Chancellor to tackle what they see as a new frontier in an anti-poverty agenda.

It is suggested in the article that Rowan Williams, Archbishop of Canterbury is backing the calls, which relate to domicile laws in the UK, the whole ethics of tax avoidance, and the specific links between tax avoidance, tax evasion, tax havens and development.

As George Gelber head of public policy at Catholic aid agency Cafod said:

As finance ministers fret over reaching aid commitments they made at Gleneagles, they should also be focusing on how they have allowed millions of dollars to pour through tax havens, draining developing countries of far more resources than are going in as aid.

Part of my motivation for doing the work I do is my Christian faith; an issue I don’t usually mention as I don’t feel obliged to share it with others who have made their own choices. But, I can’t help but say that explicit support from all these organisations, with all of whom I have worked, is personally very welcome.

Newsnight features the domicile campaign

Domicile 1 Response »

Apr 292007

For those who are quick, there’s a chance to see the repeat of Friday’s Newsnight on BBC2 that features 10 minutes on the domicile campaign. Start about 10 minutes into the programme.

The opening feature focuses on the UK government web site highlighting the advantages of the UK as a tax haven, about which they learned from this site. I was also asked to be on the programme, but the trouble with living in a somewhat remote location was getting to a studio just was not possible in the time available.

Still, John McDonnell MP seemed to cover the job rather well. And it’s worth watching just to see the archive shots of Gordon Brown saying the domicile rule will go. How power changes a man.

IFRS to go global?

Accounting Comments Off

Apr 272007

MSN reports (from the FT) that:

The US Securities and Exchange Commission has raised the unexpected possibility of US companies being allowed to file their accounts in line solely with international accounting standards, not US rules – creating the hope of a genuine global accounting benchmark

No, in that case why do we need the new IFRS 8 which is in fact pure US GAAP and quite inconsistent with European GAAP?

More than that though, if this is the case, if a revised IFRS 8 did include country-by-country reporting this would now be globally relevant. The benefits to all those concerned with transparency, accountability, fair trade and tax compliance would be considerable. What is more, shareholder risk would be reduced considerably.

Maybe, just maybe there are signs for hope.

The European Parliament kicks IFRS 8 into touch – for now

Accounting 3 Responses »

Apr 272007

The European Parliament has set the cat amongst the pigeons on IFRS 8. The motion calling for an impact assessment of this deeply flawed standard, to which I referred here, was passed by the EU Parliament yesterday. There’s more on this here.

I would stress, the European Parliament technically has no power to stop this process, and the IFRS has been approved by EFRAG, which is the body that reviews these things for the EU. But, having serious political opposition to this issue from the Parliament is unexpected, and I have to say welcome. It will at least delay the process of adoption. Some believe it more significant than that. I wouldn’t go so far as to agree with the person who as said to me ‘IFRS 8 is dead in the water’. But I suspect panic is rippling through the IASB right now.

More than that though , the passing of this resolution does these things if (and it’s big if) the impact assessment is run properly, and involves consultation to ensure relevant voices are heard:

It allows the issue of country-by-country reporting to be put back on the agenda;
It allows the voices of the ‘users’ of financial statements to be better heard, and remember that some of the backers of this call in the European Parliament represent a significant proportion of the UK Stock Exchange;
It raises question about the IFRS / US GAAP convergence programme and the desirability of that process;
It lets the IASB framework be questioned, because if IFRS 8 sits within it then it is hard to reconcile that with the true and fair view required under EU Company Law Directives
The question of for whose benefit financial statements are prepared is on the agenda.

These in turn open up a whole host of issues. I am unambiguous. All of these are good things. Now, let’s hope the Commission does its job properly. I’m one of many who will, I suspect, want their say before IFRS 8 progresses.

Bono’s partner pays up $3.5 million – because he’s done nothing wrong

Accounting, Corruption Comments Off

Apr 262007

Dennis Howlett covers the option backdating scandal at Apple today and provides links to useful stuff. Reuters summarise the story like this:

Fred Anderson, Apple’s ex-chief financial officer, has settled with the U.S. Securities and Exchange Commission on his alleged participation in the backdating of stock options, The Wall Street Journal reported on its Web site on Monday.

Anderson agreed to a fine of about $150,000 and to repay option gains of about $3.5 million under the settlement but won’t admit to any wrongdoing, the paper reported, citing unnamed sources.

The statement from Fred Andersen makes interesting reading. I’ve never seen anyone say it was someone else’s fault so clearly without quite shouting ‘it was him’. As Dennis says:

Everything I’ve read about Steve Jobs indicates a man who while brilliant is a control freak. I cannot believe that a man of Jobs intellectual talent did not know the implications of what transpired between them.

Frankly, I agree. I can’t believe it either. And I agree with Dennis on this as well:

My view is that if the SEC allows Jobs a free pass then its ability to provide an effective oversight role will be severely dented.

Not that the SEC has much credibility anyway. But there was one other little bit at the end of the statement from Fred Andersen that caught my eye:

Fred looks forward to continuing his career as a Founder and Managing Director of Elevation Partners.

Who is Fred’s partner in Elevation Partners? Well, it’s Bono, of course. He has a knack for picking people. He’s bought into Forbes, and here he’s got a man who pays out over $3.5 million for doing nothing wrong. Just like you do.

I’ve paid my tax – does the ‘tax amnesty’ affect me?

Amnesty 1 Response »

Apr 262007

A question has been posted on this site. It asks:

I am puzzled by this so called offshore tax amnesty. I have for many years had an offshore savings account as a consequence of working overseas. But I have always declared interest for tax while resident and working in the UK. Yet the impression I am getting is that anyone holding an offshore account, interest declared or not, will be targeted or investigated if they do not “come forward”. And as a matter of interest, just exactly what information has my bank been forced to disclose to HMRC?

Because the issue is perhaps of more general concern I’ve chosen to answer here, and not as a response that few will read.

There is nothing illegal about a UK resident person holding an offshore account if, assuming they are domiciled in the UK and that seems likely from what you say, the interest is declared in the UK and all UK due tax is paid;
Since it seems you have done this in theory you have no reason to make a declaration at this time;
However, under the powers afforded to them under section 20 Taxes Management Act 1970 and under the EU Savings Tax Directive HMRC have now obtained information for the first time on accounts held in the Crown Dependencies by people who have addresses in the UK. I would stress that there is nothing sinister in this, and in my opinion the word ‘force’ should not come into debate. The same banks supply details of all interest paid by them in the UK to UK resident people to HMRC every year and have done so for as long as I can recall. All that has been created is a level playing field;
The difference is, however, that most people with accounts in the UK are either a) basic rate tax payers for whom no additional tax is due on the account or b) tax compliant taxpayers where the additional liability they might owe at higher rate has been declared. It is an unfortunate fact that considerable numbers holding offshore accounts do not fall into this category. My evidence is that at least 70% of those with accounts in the Crown Dependencies asked for information on them not to be disclosed to HMRC under the EU Savings Directive. Candidly the only reason for that is a desire to evade tax unless (as is true for at most 70,000 declared people in the UK) they are not domiciled in the UK but are resident here and do not need to disclose.
The result is that the Revenue are now aware of hundreds of thousands of accounts for the first time, many of which will give rise to tax liability in the UK. The Revenue don’t have the resource to filter all this information so they’re asking people to voluntarily declare their liabilities instead. I suspect that for at least 95% of those who do declare under the new disclsoure scheme any declaration now will be accepted by HMRC in full settlement of tax owing and that will be that.
In your case you have no reason to make a declaration: you have paid your tax. So in theory you can ignore this.
In practice I would not ignore this. But nor would I declare anything. I’d simply suggest that you write a letter to your tax office and say that you do have an account with XYX Bank in Jersey / Guernsey / Isle of Man with account number XXX and that you have always declared interest in full on the account on your tax return and that you have nothing more to pay now if you are entirely sure that is the case. That way you simply seek to prevent an enquiry arising later. It’s not necessary, but I think it would help.

As I noted at the outset, it seems you’ve done nothing wrong. But the simple fact is that despite the claims made by Jersey, Guernsey and the Isle of Man that they don’t want illegal funds associated with tax evasion in the Crown dependencies it seems likely that they’ve been awash in them, and this has resulted in the mildly unfortunate (but no more) consequences for the enquirer.