2009 January » Tax Research UK

John Sentamu speaking a lot of sense

Economics, Ethics Comments Off

Jan 162009

John Sentamu, Archbishop of York, has had this (and more) to say in the Times:

The blind pursuit of profit has to end, with our wealth and economic power used in the service of a greater social purpose

It began with a squeeze, then the squeeze became a crunch and the crunch became a downturn and the downturn became a crisis. A crisis of faith as the temple of Mammon on which we have all sought to build our economic prosperity was tried in the fire of truth, honesty and reality, and was revealed to have shaky foundations.

It began with too much debt. Bad debt in the form of junk mortgages sold to people without a hope of paying them back and then pooled together and traded as collateralised debt obligations – against which further loans were made. When the day of reckoning came – and there is always a day of reckoning – the winds of truth blew away the countless houses of cards.

Greed, risk-taking, the trading of false rumours and the speculation of the money markets has pulled down banks and businesses overnight. The removal of morals from markets has led us to this present position.

Any putative regulation must not simply seek to limit the reoccurrence of recent events; regulation should also take into account a more basic understanding of the moral implications of our actions. A moral framework for free enterprise must be created in which God is not an add-on but its foundation. This framework would help us to see that the economy is our servant and not the master. Therefore, the purpose of our wealth and its creation must be used in the service of a greater vision. Our economic ship is leaking dangerously. We have to find a way of getting it into port. But when we get there it must not be business as usual.

There is a lot to be applauded in there.

Especially the fourth paragraph and last line.

My del.icio.us bookmarks for January 13th through January 15th

Delicious 5 Responses »

Jan 152009

These are my links for January 13th through January 15th:

Bloomberg.com: UBS banker a fugitive – "Jan. 14 (Bloomberg) — Raoul Weil, the former UBS AG official indicted on a charge of conspiring to help 20,000 wealthy Americans hide assets from the Internal Revenue Service, was declared a fugitive by a U.S. judge.
Weil, 49, former chairman of global wealth management at UBS in Zurich, was indicted Nov. 6 in Fort Lauderdale, Florida. UBS, the largest Swiss bank, helped wealthy American clients evade taxes with false documents after agreeing in 2001 to identify account holders and tell the IRS about their income, the U.S. alleged."

This is the only way to get these people: threaten them with some time behind bars
Irish Examiner | Irish News | Bono to feature in Obama Inauguration – Obama had to disappoint
I did not realise it would be this early
HMRC cracks £200m personal tax scheme – Accountancy Age – Good news
HNIs home in on new tax havens- Indicators-Economy-News-The Economic Times – You'd have thought the Indian accountancy profession would have more to think about right now than how to promote tax abuse
But apparently not

The USA

Blogging 1 Response »

Jan 142009

I’m in DC – hub of the world, they say

So Vodafone Mobile call only find 2G connections

When it does it says Googlemail is barred for security reasons

The hotel’s wireless network is steam powered and refreshes a page once every few minutes

Is this a metaphor for Washington? Stuck in its own little cocoon unconnected to the world outside?

I hope not.

But having tried every which way I can to get on to the net this is as far as I got in exchange for a lot of bucks. Maybe that’s another metaphor for this place.

Is an audit worth anything?

Accounting, PWC 2 Responses »

Jan 142009

Prem Sikka has this in the Guardian today:

Satyam is India’s fourth largest software company. It complied with the latest accounting standards and boasted audit committees, independent directors and a global accounting firm as its auditor.

The resignation letter of Satyam’s chairman explained that he inflated cash and bank balances by about $1bn, understated liabilities by $253m and improved profits by accruing non-existent interest and overstating debtors. For the quarter to September, the company inflated its profits by 97%. It published an operating margin of 24% against an actual of 3%. Its profit should have been $12.5m instead of $136m. Such frauds can’t easily be perpetrated by one person.

Satyam’s accounts received a clean bill of health from the Indian arm of auditors PricewaterhouseCoopers (PwC). The firm received a fee of $1.92m from Satyam, including $325,000 for consultancy.

The case is made: the current model of auditing has failed.

Now we need to move on to something else.

Closing The Tax Gap

Tax avoidance, Tax evasion Comments Off

Jan 142009

Accountancy Age has reported that:

The new head of HM Revenue and Customs, Mike Clasper, has made ‘closing the tax gap’ one of four top priorities he has set the tax authorities.

I hope he has a copy of The Missing Billions.

Tax Justice Focus

Tax Justice Network Comments Off

Jan 142009

The new edition of Tax Justice Focus is out. As TJN says:

This is a special edition of Tax Justice Focus looking at the tumultuous events of the last year, and looking forward to next steps in a fast-changing world and a deepening global economic crisis. It is edited by Nicholas Shaxson and John Christensen.

In the editorial on page four, What a Year, we look at the remarkable changes that have occurred in 2008, as our agenda has spread rapidly into new constituencies. partly motivated by a mobilisation ahead of the Doha conference on Financing for Development, alongside a growing awakening on our issues in the context of the global economic crisis. It looks at some of our projects for the year ahead.

In our lead article Tax and Development Jeffrey Owens, head of tax at the OECD, looks at why tax, long neglected in the development debates, is so important. He explores the constraints developing countries face with respect to tax, and offers pointers to non-governmental and other actors. New efforts are needed, he argues, to develop an internationally accepted methodology for measuring aspects of the problem.

In our second feature article The Plato Index: Measuring Tax Justice, on page six, Professor Edmund Valpy Fitzgerald and John Roche lament the lack of good data on tax for developing countries, and explain their revolutionary work (in partnership with TJN) in developing a new tax data base and a new index to measure and compare tax justice, across and between countries. We hope that this index will eventually be included in the new United Nations Development indicators.

John Christensen follows this up with his long feature article on page eight, Doha: A cup half full? which follows our special Doha edition last April. Examining the moderate progress recorded at the conference on financing for development at Doha, Qatar from November 29-December 2. He concludes that we came away with a feeling that tax matters have moved from the periphery to the core of the development debate, and we know we have played a part in this.

Well worth a read.

What is profit?

Accounting 2 Responses »

Jan 132009

I wrote a blog the other day entitled Modern Finance: Making Dividends out of Loans. Am American CPA seems to have take offence at my, admittedly, broad brush approach, saying:

What I am trying to do is verify that your claim has is based in fact. That’s all.

Given that the financial sector represents 20% of the S&P 500, what you are claiming is the following:

1) All $2.4 trillion in profits are directly attributable to the financial sector of the S&P 500.
2) The remaining 80% of the S&P 500 had profits and losses netting to $0.
3) All of the $2.4 trillion in profits were a result of market-to-market gains.
4) The financial sector had, on a net basis, $0 in operating profit.

In other words, you’re claiming that 100% of the S&P 500′s profits for September 1, 2004 through September 30, 2008 were the result of mark-to-market accounting for marketable securities.

Those are extraordinary claims

Except of course that is not what I said at all and it is worrying that this accountant seems to think that mark to market accounting applies only to the financial sector.

Admittedly, I view this from a European perspective, and from that of International Financial Reporting Standards. But the whole basis of fair value accounting, as we would have it over here, has fundamentally reformed all reporting for all companies, and not just the financial sector.

In fact, so radical has the reform been that it seems to me that to very large degree what sector a company is in is now largely irrelevant to the form of reporting that it offers. The explanation is simple: if the purpose of financial reporting is, as both the International Accounting Standards Board and FASB contend, to supply information to the providers of capital to assist them in deciding how to allocate their resources, then financial reporting has no longer got anything to do with what the company actually does, and only has relevance to what opportunity it provides for making a rate of return within the financial marketplace. Everything in that circumstance has been reduced to one common denominator, which is how to make a quick buck.

Mark to market accounting is a fundamental element in this process: it enshrines the financial markets to which information is supplied by reporting entities within their own reporting systems, based on what I think the IASB thought was a virtuous circle, but which has transpired to be the very opposite.

And this mark to market process applies to a wide range of activity, not just to the marketable securities of financial institutions. As a result pension fund accounting has been fundamentally reformed; so too has been the accounting for goodwill (where write-offs mysteriously stopped almost overnight when this method of accounting was introduced). Property accounting was radically transformed, as was the accounting of the company for its own debt: the liability not now being the cash due but the market worth of the debt, which is something potentially quite different. I could go on, but the point is this: accounts before and after the introduction of fair value or mark to market accounting cannot be related to each other.

The fundamental difference is this. Under accruals accounting based on historical cost profit was accounted for in accordance with this equation:

Sales – Costs = Profit

Under fair value accounting profit is determined using this equation:

Net value stated at market worth at this year’s balance sheet date – Net value stated at market worth at last year’s balance sheet date = Profit

Yes, I do know I am simplifying things: of course I am, but that does not change the fundamental point: if you change the absolutely basic accounting equation on which you build your perception of profit the results before and after the change will not be the same. And that has been our experience. So radical is the change that before the change cash flow could basically reconcile one balance sheet with the next: now it need not. And if cash is no longer king then dividends can be manufactured artificially. They have been and we are paying the price for it. So are millions and millions of innocent investors.

Is that a cost the accounting profession should have imposed upon these people? I suggest not. But impose it it has. It has a lot to apologise for, and I’m not apologising for making the point.

My del.icio.us bookmarks for January 12th through January 13th

Delicious Comments Off

Jan 132009

These are my links for January 12th through January 13th:

FT.com / Global Economy – Business concerned at new US visa rules – Discovered this yesterday afternoon – by chance – and will be in DC by tonight
Did the airline make contact? No. The travel agent? No.

Just luck and an observant colleague.

Great customer service – and it's a US airline too
Who can you trust? Bank or accountant | AccMan – Interesting comment on discussion between two people whose judgement I trust
Who will speak for the taxpayer? By Simon Sweetman – 11 Jan 2009 – Good comment from Simon Sweetman – a man usually worth listening to
FT.com / UK / Business – N Rock investors begin compensation fight – This campaign never had logic behind it
Now it is very obviously bankrupt

A fundamental error of judgement

Banking Comments Off

Jan 132009

I think this is pretty amazing:

UKFI, run by former Treasury official John Kingman, will this week announce the appointment of four new non-executives to its board. They are Glen Moreno, chairman of media group Pearson, Lucinda Riches, a former UBS banker, Peter Gibbs, former chief investment officer of Merrill Lynch Investment Management, and Mark Kirkwood, the former senior banker at Citigroup.

Moreno, I would add, is also ex Citigroup.

That makes this a clean sweep of people from failed banks now running the revival of UK banking.

Is this meant to inspire confidence? Are we meant to believe that these people have learned the new tricks needed?

And where are the representatives of the stakeholders in all this: the taxpayer, the members of staff, the customer, the mortgage account holder, or anyone else?

No – we’re still in the world where bankers know best. And I have a blunt retort to that: the state of the economy is proof that they don’t. These appointments do really represent a fundamental error of judgement on the part of all involved.