2009 January » Tax Research UK

My del.icio.us bookmarks for January 23rd through January 26th

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Jan 262009

These are my links for January 23rd through January 26th:

FT.com / Companies / UK companies – Aim squeezed by grip of recession – More than 10% loss of membership in the AIM market in a year
That's one measure of the recession
FT.com / Comment / Analysis – Lynched at Merrill – And rightly so
More need to pass that way
FT.com / Comment / Opinion – We need action not accusations in finance – "Bankers, regulators, governments and, of course, investors need to think deeply about what went wrong, not to apportion blame but to improve the working of the market-based system and repair the damaged confidence that blocks the path to recovery. This is a huge task that will require a great deal of openness and honesty from all involved, as well as an appetite for changing the way things are done."
True but that requires that the critics be asked to be involved

And right now they're not beating a path to our door

Why not?
FT.com / Europe – Cracks widen in Iceland as minister quits – Iceland has been brought to its knees and no one – anywhere – has quit
Isn't it about time they looked for alternatives in their government and for their government?
FT.com / UK – More big companies consider UK tax exodus – They want the UK to be a tax haven
But it can't be

And nor can any state with serious responsibilities

Which is why we have to target Ireland. Luxembourg and the Netherlands as serious components of this problem
FT.com / Brussels / Finance & Markets – Warning over quantitative easing in eurozone – It's vital they tackle this – a currency that can't be integrated into economic management is a real problem
I happen to think they will solve it
FT.com / Global Economy – World warned of ‘food crunch’ threat – It's one of the reasons we need a Green New Deal
U.S. and U.K. Could Fall Out over Tax Havens — Seeking Alpha – They're right
Liberal Conspiracy » Will the red Tories spill blue blood? | creating a new liberal-left alliance – I have enjoyed debate with Phillip Blond over the last couple of years
He is a man of the moment

And he's challenging the Tories to move in directions they have not been for a long time

Some of his themes are wholly familiar and welcome to me

This article is worth reading
FT.com / World – Ex-Deutsche Post chief admits tax evasion – Oh yes, it really happens
And it's only secrecy that permits

Deliberate secrecy created with the sole intent of facilitating this

PWC – were they party to and part of the Satyam fraud?

Corruption, PWC 3 Responses »

Jan 262009

From the Economic Times of India:

PricewaterhouseCoopers (PwC) auditors manipulated Satyam Computers accounts for money. According to Crime Investigation Department (CID) sources, Satyam founder B Ramalinga Raju and former chief financial officer (CFO) Vadlamani Srinivas confessed that the auditors of PwC were aware of the fraud and very much involved in executing it.

“Five banks, including HDFC Bank and BNP Paribas, replied to our queries saying that the reconciliation statements of the fixed deposits shown by Satyam Computers at auditing were not issued by them,” a CID officer, who is part of the investigation team, told TOI on Sunday.

According to CID sources, S Gopala Krishnan, who was the auditor for Satyam Computers on behalf of Price Waterhouse between 2000-2001 and 2006-2007, and Srinivas Talluri, the auditor for 2007-2008 fiscal, were well aware of the fraud.

“The auditors falsified accounts,” the CID officer said.

During the grilling by CID officials, Rajus and their CFO V Srinivas reportedly told their interrogators that they had paid handsomely for manipulation of accounts.

“The normal charges could be about Rs 1.5 crore per month,” a source said.

It doesn’t look good.

It’s also the glaringly obvious explanation of how it happened.

Tomorrow the House of Commons Treasury Select Committee have a hearing on auditing. They’re wondering how auditors are independent when they take fees for other services from clients.

It may not be fraud, but cash always distorts objectivity.

A new system of auditing is essential.

Hat tip to Dennis Howlett

Strip them of their peerages

Ethics 3 Responses »

Jan 252009

The Sunday Times has suggested at least four Labour peers indicated themselves willing to accept cash to seek to amend legislation.

I hope they are stripped of their peerages.

It’s time the Lords were required to register all their business interests – and where they are domiciled. This is a Tory issue too.

Some of us did say the Emperor had no clothes

Tax Justice Network 1 Response »

Jan 252009

Nick Cohen argued in the Observer this weekend that the Left did not see the crash coming. Worse, he sys its intelligentsia did not mount counter argument to the dominant market based themes that prevailed in the UK for far too long:

Liberal Britain stayed silent as tyranny swept by because it too wanted the quiet life. Normally, left-wing eras end because the left loses itself in ideological excess and careers off into the margins of politics. The left of the early 21st century was an exception. It failed not because it was left-wing but because in crucial respects it was not left-wing enough. It forgot the lessons of the Great Depression and failed to regulate runaway markets.

Wrong Nick. Those of us who started the Tax Justice Network were entirely counter-cultural way back in 2002/03 when we got that show on the road.

We said tax havens were gutting finance.

We warned that the opacity they promoted undermined democracy.

We said they were a threat to the credibility of the market system.

We were right.

I wish people had listened a bit earlier. I wish those in 10 and 11 Downing Street were listening now.

But you can’t say all of us missed the boat. Some of us were willing to stand out from the crowd when it was completely out of fashion to do so.

Better the convert

Banking Comments Off

Jan 252009

I can’t resist recording this from Adair Turner’s speech as chair of the Financial Services Authority this week:

Not all innovation is equally useful. If by some terrible accident the world lost the knowledge required to manufacture one of our major drugs or vaccines, human welfare would be seriously harmed. If the instructions for creating a ‘CDO-squared’ [a credit derivative manufactured out of other derivatives] have now been mislaid, we will, I think, get along quite well without.

And in the years running up to 2007, too much of the developed world’s intellectual talent was devoted to ever more complex financial innovations, whose maximum possible benefit was at best marginal, and which in their complexity and opacity created large financial stability risks.

Shame that in some of previous incarnations he did not say the same things with the more clarity. He was, after all, vice-chair of Merrill Lynch in Europe 2000 – 2006, where he could have done much to stop such things. But better the convert I guess.

Brussels looks for lost VAT in the Channel

Guernsey, Jersey, Tax avoidance, Tax Havens, Tax management, VAT 37 Responses »

Jan 252009

The Guardian published a long article on the VAT abuse that Jersey and Guernsey continue to facilitate VAT abuse in the UK yesterday. It says:

The European commission is investigating complaints about the tax advantages enjoyed by some of the leading online CD and DVD retailers in the UK, including Play.com, HMV.com, Amazon.co.uk, Tesco.com and Asda.com.

These companies are among the biggest players in a ballooning home-delivery trade that is depriving Treasury coffers of hundreds of millions of pounds and has helped push many independent music stores out of business.

The tax dodge means online sales of most CDs and DVDs do not attract VAT – after accounting for the cost of delivery from the Channel Islands they are typically sold 10% cheaper than in most high street stores and supermarkets.

The post-Christmas closure of hundreds of Woolworths and Zavvi stores is expected to see e-retailing make further inroads into album and DVD sales this year. The quiet gains in tax-loophole home-delivery orders will far outstrip any improvement in much-hyped download sales.

As it notes:

One of the fastest-growing e-retailers is TheHut.com, founded six years ago by Matt Moulding, a former executive in John Caudwell’s mobile phone empire. TheHut.com provides VAT-free CD and DVD home delivery services from its Guernsey warehouse on behalf of Tesco.com, Asda.co.uk and the Co-op online. It will shortly start a similar contract with WHSmith.co.uk and is in talks with Argos.co.uk, one of Britain’s largest online retailers.

Many of these well-known high street names have pledged to cut their carbon footprint, but the VAT loophole trade adds a needless 1,000-mile round trip to many goods – sourced in the UK, shipped overseas, only to be sent out to customer’s homes across Britain.

Full marks to Richard Allen with whom I have been in much discussion over the last couple of years for keeping this abusive trade in the press.

Full marks to for highlighting the complete hypocrisy of the Treasury on this issue. As the Guardian notes:

In early 2005, Treasury estimates went some way to acknowledging the scale of the problem. They suggested likely losses to the taxpayer from VAT relief were running at £80m a year and warned the shortfall could rise to £200m in a couple of years. More recently, Treasury officials have privately claimed that figure has not been reached, though campaigners insist £200m looks a very conservative estimate.

I’ll confirm that last point. And yet note this:

Though they have received repeated complaints from struggling high street retailers, the Treasury and Revenue & Customs have argued the cost of closing LVCR would outweigh any savings. They have also suggested blocking the relief could harm the Channel Islands economies. Officially the trade remains “under close review”.

How absurd can they get?

Do we ignore cocaine trading because it helps the Columbian economy?

Do we support other states who help decimate out High Streets of shops?

Do we have any obligation to help the Channel Islands when they have deliberately set out to steal our tax revenues?

Apparently the Treasury thinks we have.

It gets worse:

Despite strong evidence to the contrary, the British government has told Brussels the scale of VAT loophole trading has been exaggerated. A European commission document seen by the Guardian details how the UK authorities claim Jersey has “utilised business licensing laws” to push out online retailers not indigenous to the island. “Jersey has required 17 such businesses that were already established to leave,” UK authorities told Brussels officials.

The commission document says: “The effect of these actions, according to the UK authorities, is that there are no known suppliers remaining on the Channel Islands that operated in the ‘circular’ way described in the complaint. There are only two retailers remaining on the islands that make significant sales of CDs/DVDs to the UK, one being an indigenous Jersey-based company, and the UK authorities understand these to operate as normal logistics hubs fulfilling orders from substantial stocks held in warehouses there.”

But the Guardian has found some of the biggest names in retailing, including some that had previously retreated from Jersey, are legitimately using agent companies with operations on the island to gain the benefits of LVCR. Tesco, Asda and Amazon each use agent companies with operations in the Channel Islands able to transact with customers in a way that qualifies for LVCR.

One regular supplier to Jersey retailers, who asked not to be named, said: “It is ridiculous to suggest warehouses on the island are buying or holding stock levels appropriate for the island’s local market. Of course the trade is circular.”

Given its remoteness, Jersey would be highly uncompetitive as a “normal logistics hub” without being able to offer LVCR. Play.com and TheHut.com both ship those goods that attract VAT from centrally based warehouses on the British mainland. Only CDs, DVDs and some computer games are shipped from Jersey by Play.com and from Guernsey by TheHut.com.

Cogently and correctly argued.

I have seen other evidence recently of the Revenue blatantly misrepresenting the reality of the Channel Islands to the EU to support their abusive tax structures. It seems that they are undoubtedly doing so here.

So let’s ask some real questions:

1) Why is the Treasury dedicated to perpetuating offshore tax abuse?

2) Why does the Treasury persistently misinform the EU on issues relating to the Channel Islands?

3) Why is the Treasury willing to turn a blind eye to tax abuse costing 25% of the total benefit fraud they pursue so vigorously in this country?

I’d appreciate answers.

Worstall – getting it wrong again

Economics 36 Responses »

Jan 252009

Tim Worstall is a man of the highest opinion, of himself.

As far as I can tell he thinks almost everyone I know who has ever written anything is wrong.

It’s a position he might sustain if he was forever correct.

Unfortunately Tim fails in that objective. There are two good reasons for that. First he never appears to propose anything; he only criticises others. And when he does criticise he either deliberately misses the point, shooting down straw men of his own construction or he is just wrong.

His latest go at me concerns seigniorage: not a subject in common discussion I admit. It is the profit made by a person who creates currency (to put it in a nutshell). I argue that this profit largely arises to our banks. That’s because 97% of all money in use is electronic, and the banks make that. It’s that currency that they created that they have also lost: it’s how there was sufficient money to generate the enormous losses they have suffered.

Then there’s cash: that’s 3% of all money in use. Worstall argues I’m wrong because the profit on the creation of cash always goes to the Bank of England – even when issued by private banks in Scotland and Northern Ireland.

I don’t dispute this point, but when sneering what’s more important – the 97% electronic money to which I referred or the 3% cash with which he tries to defeat my argument?

As ever Worstall has his priorities wrong, which is a pretty good synopsis of almost everything he says.

The directors of HSBC and HBOS should be prosecuted

Accounting, Banking 4 Responses »

Jan 252009

The Observer carries a story this morning that HSBC and HBOS have both failed to comply with a very basic requirement of company law. As they note:

Two of Britain’s biggest banks have failed to register the location of their subsidiaries in what appears to be a contravention of British company law.

Companies are required to disclose in annual reports, or annual returns, where subsidiaries are registered. But both HBOS and HSBC admit they have failed to comply with this requirement.

HBOS and HSBC claimed the matter was a result of a simple administrative error.

I agree with TUC boss Brendan Barber who told the Observer that he believes the “oversight” is part of a worrying trend in which banks that are now receiving hundreds of billions of pounds in treasury support have been using secretive tax havens for esoteric operations such as structured investment vehicles.

He’s right.

But there’s another point to make. Candidly I do not believe that HBOS made an innocent mistake. They did not file in 2006 or 2007 either. That’s a systematic error: that suggests it is deliberate.

And now it’s been rumbled HSBC might say that that was “a simple systems error, in the original filing” but let’s be clear about this: it is one for which the directors are culpable. Why make it an offence if the directors of some of the largest companies in the UK are not prosecuted when they breach this requirement?

So my message is simple: get them in the dock, now. Make an example of the directors of these banks. Let’s show we mean business when we demand compliance and transparency. Nothing less will do.

Disclosure: I am a consultant to the TUC. Opinions expressed are my own.

One of the best comments on the Inauguration

Tax Havens Comments Off

Jan 252009

This comes from the Royal Gazette in Bermuda and has to be one of the best comments on the inauguration I have read:

The inauguration of President Obama was everything it had promised to be. These must be awful times to be a redneck: a skinny black guy as President, a brainy Jewish chief of staff and a feisty female Secretary of State. Imagine! There was only one moment of horror for the rest of us. It came when, right in the middle of the whole thing, Dianne Feinstein invited the audience to greet a singer. For a brief, awful moment, I thought it was going to be Bono, who is, when all is said and done, the true leader of the free world.

Then I remembered that Bono is now famous mostly for hiding his earnings in an offshore tax haven, so it was unlikely he would be part of the celebrations. Americans have gone off tax havens, even though it is US dollars that are most often hidden in them. Plus, the appalling Irish bighead is not American, although that hadn’t stopped him prancing about on the Mall at the concert a couple of days before the inauguration.

I am amused.