2007 July » Tax Research UK

Why the Bulgarian flat tax won’t work

Flat tax Comments Off

Jul 312007

There’s an interesting comment on the new Bulgarian flat tax at Novinite, which is a Sofia based news agency. It says:

Certainly, [flt tax] has a fair number of supporters and detractors, but even the staunchest advocate of flat tax will agree that it is not a magic wand that will solve all the problems in an economy.

If properly applied, flat tax could go a long way to achieve that goal, but no matter how low you push the taxation rate, it will not attract too many new investors if it is not coupled with measures to fight corruption.

Part of the reason why the flat tax has been an efficient tool in diminishing the “grey economy” in other countries was the willingness of governments to couple it with draconic measures to crack down on tax evasion.

Even though it is a long-term goal, this kind of measures give the foreign companies the feel that things are going in the right direction and makes them more likely to invest their money in those economies.

Bulgaria, on the other hand, has notoriously been sluggish with its fight against corruption and the organised crime.

If the cabinet fails to supplement the flat tax with a package of measures that would make corruption and tax evasion economically unsound, it will only achieve the further erosion of the macroeconomic stability built up by previous governments for the suspect goal of winning another election.

I agree.

Bulgaria to have a flat tax

Flat tax Comments Off

Jul 312007

Bulgaria has announced it is to have a flat tax in 2008.

Alvin Rabushka will be cock-a-hoop.

But he shouldn’t be. As I’ve shown for the ACCA, these places have not got flat taxes, and flat taxes don’t work.

The National Audit Office uses TJN language

Tax compliance Comments Off

Jul 312007

The National Audit Office released a report on HMRC and the management of large business corporation tax. I was asked to contribute to this process. I am delighted to see one practical result of that. The report notes that:

The Department aims to collect the right tax at the right time.

This is, of course, the definition of tax compliance I have been promoting (here, for example), the right place not needing to be added in this case.

I hope it becomes Revenue norm.

Patented tax avoidance

Accounting, Dennis Howlett, Ethics, Tax management 2 Responses »

Jul 312007

The NJ Biz reported yesterday that:

Growing concern over a federal agency’s four-year-old decision to grant patents on tax strategies has some CPAs in New Jersey and elsewhere worried about counseling clients on tax planning.

But “if drugs can be patented, why not tax strategies?” asks E. Martin Davidoff, a Dayton CPA and tax attorney, referring to a decision by the U.S. Patent and Trademark Office to extend patent protection to tax strategies.

I have to say I linked this story to an excellent piece by Dennis Howlett yesterday on the professions and self interest, which I recommend. The reason is simple: this is the profession putting its interests above those of the society it serves and which grants its right to charge super-normal levels of fee.

And if you want an answer as to why not, just consider this. Suppose the government wants to outlaw a patented tax strategy. Does that mean they will have to pay compensation to the patent holder for loss of royalty income? In a society like the US that is on obvious risk. And in that case the right to legislate on tax has been privatised. That’s why not, Mr Davidoff.

Tax is a public good. The problem our profession has is that it sees it as a public bad. And that is undermining not just our profession, but the stability of our society as a whole. That’s the inevitable result of putting individuals above communities. And that’s what our obsession with private property is doing.

Ten years on – and domicile is still on the agenda

Domicile, Private equity Comments Off

Jul 312007

It was interesting find an article on on our domicile rule in the International Herald & Tribune of 5 July 1997. It said:

A standard test for trainee British tax accountants is to decide whether Britain is a tax haven. According to Richard McIlwee, a tax partner with Clifford Chance in London, most are surprised to find that for certain expatriates the answer is yes.

Expatriates enjoy a number of tax breaks that are unavailable to residents. For the most part, these benefits are based on Britain’s unusual domicile rules.

It continued:

But following the election of the Labour government in May, the question now is whether Britain’s expatriate benefits will continue and, if they do not, what options will be available to foreign residents in Britain.

Rumors that the new Chancellor of the Exchequer, Gordon Brown, was looking closely at Britain’s domicile laws began circulating ahead of the budget. Although some of his earliest policy changes – such as partially freeing the Bank of England from government control – were welcomed by the British investment community, many people have still to be persuaded that the new government is truly pro-business.

Now compare that with the Treasury Select Committee report published yesterday:

Whilst recognising that the issue is not exclusive to private equity, we also ask the Treasury to inform us of the progress on the 2003 review of the residence and domicile rules as they affect the taxation of individuals, and note that the Treasury and HM Revenue and Customs need to demonstrate a rigorous approach towards claims of non-domicile status.

Think what abuse could have been prevented if Gordon Brown had acted in a timely fashion.

The IMF says aid needs rethinking

Development, IMF, Tax Justice Network, Tax management 1 Response »

Jul 312007

Nick Shaxson has written a first rate price on the TJN blog. He refers to IMF thinking on aid, just published, that says:

We find little robust evidence of a positive (or negative) relationship between aid inflows into a country and its economic growth. We also find no evidence that aid works better in better policy or geographical environments, or that certain forms of aid work better than others. Our findings suggest that for aid to be effective in the future, the aid apparatus will have to be rethought.

Actually, we agree. It’s why we talk about tax as the essential fourth leg in the development agenda. Read Nick’s piece to learn more.

Falling out in Jersey

Jersey, Richard Murphy Comments Off

Jul 302007

The Chief Minister of Jersey has asked health minister Senator Stuart Syvret to resign. It has been reported that:

Six ministers are saying they’ve lost confidence in Senator Stuart Syvret to remain a member of the Council of Ministers. And Senator Walker agrees with them.

They want him to go because of comments he made in an email he sent to all ministers over the child protection row.

In the email Senator Syvret refers to the Council of Ministers as ‘an obstacle and distraction’.

Senator Syvret has a habit of falling out with people. He’s also sent a lot inappropriate emails to a lot of people. As you can see here, and here.

In my case he’s also accused me and my colleague John Christensen of blackmail. On which there’s more here, and here. But now he’s been rumbled by his colleagues for the sort of behaviour he’s been pursuing all year, it would be nice if the States of Jersey police made me a call to say that this has been recognised to be another of his wild, inappropriate and blatantly false accusations. Because it is.

Is it true that the Big 4 aren’t promoting women?

Accounting, KPMG, PWC 1 Response »

Jul 302007

The FT has reported a survey by Accountancy magazine that shows the proportion of women at the “Big Four” accountancy firms who were made partners this year dropped by a third from 2006 in spite of efforts to attract and retain women in senior roles.

Analysis by Accountancy magazine to be published this week shows that of those promoted this year, only 14 per cent were women, down from 21 per cent last year. Chris Quick, Accountancy’s editor-in-chief said:

One of the major problems is that women tend to start families at around the same time they’re thinking of partnership. If firms want women at the top, they’ll have to show them it’s possible to combine the two

That may be true. But I doubt it. In my practice career I never had a male partner. Indeed, at one time I was the only man in my firm. So I know something about women and accountancy practice. And the reason why women aren’t making partner in these firms is not that they aren’t good enough. They are. But they don’t want to play the games these firms promote.

That’s not just a problem with macho atmospheres, or childcare and work life balance, though these are real enough. In my experience women ask themselves “If I’m giving up time with my family to do this is what I’m doing worthwhile?” And the answer for many of them when looking at what the Big 4 do will be a resounding “No”.

And they’re right. That’s the problem these firms have to resolve.

Just don’t do it

Economics, Ethics 9 Responses »

Jul 302007

Those were the favourite words of my old deputy head-master. They came to mind when I read that James Owens, chairman and CEO of Caterpillar, said his company spends some $40 million a year on tax planning. He added: