2009 April » Tax Research UK

Hear, hear

Apr 302009

There are those who are honest about the 50% tax rate. This is part of a letter in the FT. Read it all:

Sir, Like Tim Elster (Letters, April 28), I am in line to pay the new 50 per cent rate of tax. I read that high earners are apparently depressed, demotivated and planning to leave the country. Public spending on health and education has apparently been worthless, while public sector workers are self-evidently overpaid by comparison with your earlier correspondent.

Then I think of the exhausted, heavily pregnant hospital doctor who saved my son’s life at 3am after 19 hours on duty. I also think of the nursery teacher at our village primary school who spends Sunday evening at school, unasked, lovingly preparing activities for the children.

I have been in the investment business for some 20 years, during which time I have seen just how many lunches, clay pigeon shoots, tickets to the rugby and nights at the opera come between the average pensioner and his pension, or between a charity and its investment income. Don’t tell me the private sector hasn’t been wasting my money like it grew on trees.

Let’s get real about this: £150,000 is not a small amount of money. I would like to see the complainers explain exactly what items they will have to give up as the result of the 50 per cent tax band. Let’s put them on the table and we can all have a good laugh.

Surely it’s time for a more grown-up attitude to this. Possession of large amounts of money doesn’t allow people to cut themselves off from the rest of society. Society has a habit of paying you a call in one way or another, taxation being one of the more innocuous.

I will be interested to know where the emigrants are planning to end up, and whether they plan to remain perpetual outsiders in their host country.

Simon Hallett,
Peaslake, Surrey, UK

Sorry FT – this is too socially important not to use.

Where’s the room for the critics IASB?

IASB Comments Off

Apr 302009

I gather the International Accounting Standards Board is looking for a couple of investment professionals – perhaps banking analysts – who might advise their Financial Instruments Global Resources Group as part of the IAS 39 review.

Why banking analysts?

Why ask the Big 4 for nominations – as seems to have happened?

Why not ask those from outside the inner sanctum of accounting / the City who have opinion on this issue?

It really is time the IASB smelt the coffee and opened itself up to broader opinion.

CDC gets the rebuke it deserves

Development, Economics 1 Response »

Apr 302009

More than 200m stories on CDC Group on the web this morning, and rightly so. I pick the Guardian’s and limited themes (others can deal with issues such as clearly excessive pay):

The Commons public accounts committee said ‚Ä¶ [there was] a lack of evidence that the investments handled by the fund reduced poverty.

In a series of scathing findings, Edward Leigh, the chairman of the committee, said: "CDC Group … has shown that it is very good at turning a profit. We need to know, however, how effective it is at reducing poverty and so far there is limited evidence. CDC is government-owned but its obligations to report to the Department for International Development have been weak. The pay arrangements place too much emphasis on financial performance and too little on success in reducing poverty.”

CDC Group is owned and run by DfID and invests in private businesses across Africa, Asia and Latin America. It has already come under fire from anti-poverty campaigners, who accuse the company of adopting private-equity-style investment techniques, including the use of offshore tax havens to avoid paying tax to hard-pressed governments.

As the BBC added:

The committee also expressed concerns about CDC’s decision to hold some £1.4bn – over half its £2.7bn capital – within the UK, rather than investing it abroad.

It also questioned why CDC’s investments since 2004 had increasingly been made in countries like China and India which were already attracting foreign investors.

In fact just 4% of funds were in the poorest countries or in SMEs that have greatest need for funding.

It’s a sorry tale with an easy solution – CDC’s board needs to be sacked, the business model overhauled and the relief of poverty, not the aggrandisement of the Board and its advisers needs to be put at the core of all activity.

Please, no arguments – let’s just do it.

Chrysler teeters on brink of bankruptcy

Economics 1 Response »

Apr 302009

FT.com / Companies / Automobiles – Chrysler teeters on brink of bankruptcy.

More human agony.

But also more indication that the future is going to be very different.

And thyat we’ll need the State to get us through the transition.

Ireland needs to recognise low tax is not the answer

Economics, Ireland Comments Off

Apr 302009

The FT has reported:

Ireland’s unemployment rate climbed to 11.4 per cent in April, from 7.7 per cent at the end of 2008, putting further strain on the public finances.

The independent Economic and Social Research Institute think-tank predicted worse to come, forecasting that the jobless number will average 16.8 per cent of the workforce in 2010, the highest rate since the mid 1980s. It estimated unemployment will average 13.2 per cent this year.

There is no pleasure in noting this. There is real human loss in this story.

But it makes a point: I said for years that there was no Celtic Tiger. I was right. There was not.

There was just a bubble based on an artificial factor of production – tax. And it has burst as all such bubbles do.

That’s painful. Ireland is in for a long period of adjustment. The sooner it gets over its dedication to low tax the quicker it will recover.

Transfer Pricing Briefing

Country-by-country, Transfer Pricing Comments Off

Apr 302009

BBA – British Bankers’ Association – Transfer Pricing Briefing.

Note the above says it will:

Assess.. the increasing status of transfer pricing as the most important tax issue

It is.

That’s why we need country by country reporting.

Level playing field?

Tax management Comments Off

Apr 302009

Accountancy Age says:

New legislation that could see fines imposed on finance directors at companies with sloppy procedures for calculating tax returns is heavy-handed and inconsistent, tax experts claimed this week.

The liability rule, which was announced in last week’s Budget and will be introduced in the next Finance Bill, will require chief accounting officers in companies with a turnover of more than £22.8m and with more than 250 employees, to monitor accounting systems and report any problems to HM Revenue & Customs.

FDs who fail to do so will have to pay a personal penalty of up to £5,000, the government has said. HMRC said the rule, which it hopes will create an additional £140m in tax receipts over four years, could be extended if it proves effective.

I am bemused? Sloppy procedures by a sole trader can result in penalties of that order. Why not in a large company?

Isn’t this creation of a level playing field?

The Indian tax haven story reaches the UK press

Development, Secrecy jurisdictions, Tax evasion, Tax Havens 3 Responses »

Apr 302009

The Times reports:

Illegal transfers of billions of dollars from India to Western tax havens have become a big issue after two weeks of campaigning in the country’s general election.

As calls increase worldwide for a crackdown on the illicit movement of capital, L. K. Advani, the leader of the main opposition Bharatiya Janata Party (BJP), has vowed to repatriate as much as $1.5 trillion (£1 trillion), which he claims has been “looted” from India and moved overseas by corrupt officials, tax-shy members of the elite and leading companies over 60 years.

Mr Advani alleges that the money – worth more than the value of India’s economic output last year – lies in secret accounts in Switzerland and other countries. In a populist attempt to win votes in a month-long election that is at its midway point, he has vowed, if elected, to spend it on development.

As they also note:

Opponents say that Mr Advani wildly overstates the amount salted away, and other observers say that his claims are feasible, but impossible to verify. Either way, however, India is only one of many countries losing patience with clandestine offshore jurisdictions.

The source of all this discussion is Raymond Baker at Global Financial Integrity. I had dinner with Raymond last night. He seemed like a man very confident of his figures to me. And he’s right to be so: they’re based on the best data available using a range of the best techniques available.

Of course they don’t provide a precise answer. They can’t. But no one can provide precise figures for much of the data used for economic analysis – even GDP data is estimated, not precise. This has to be understood. What is however very clear to me is that the claims are simple rhetoric and without foundation:

Congress, the leading party in India’s coalition Government, admits that tax evasion is a problem, but claims that the BJP’s numbers are based on “bogus sources”.

The Swiss Bankers Association has said that the issue of tax havens has become “good election fodder”. It dismissed the numbers cited by BJP as “incredible”, but declined to provide its own.

In both cases, and as we have seen so often in the past when logical numerical analysis has been done on the best available data, the claim is dismissed as ‚Äòwrong’. But no attempt to embrace the issue results. As a consequence those of us who have produced estimates of tax lost through tax haven activity are at present the suppliers of best estimates to the world. We may remain that way. Our calculations are based on the best data there is. And it shows, unambiguously, that the problem is massive. That’s enough, I think, to justify action and India is realising that is the case. Which is the good news in this.

World Bank changes its tune on tax and regulation

Development, Economics, Ethics, PWC, Tax management Comments Off

Apr 292009

As the US House Committee on Financial Services has noted:

In an important shift in the World Bank’s approach to development, today the Bank announced the suspension of the controversial “Employing Worker” Indicator (EWI) and a commitment to reexamine and revise both the EWI and the “Paying Taxes” Indicator in its annual country-ranking exercise called Doing Business.

As it notes:

The World Bank’s highest-circulation annual flagship publication, Doing Business measures the cost to firms of selected business regulations in 181 countries and then ranks each country with a global Doing Business Rank based on each country’s ease of doing business.

While the Report rates governments on a number of constructive topics, it also includes an “Employing Workers” Indicator (EWI), which gives the best scores to countries that have the least amount of labor regulation in areas such as minimum wage levels, maximum hours per work week, requirements for advanced notice for layoffs, and severance pay. The Report also incorporates a “Social Contributions and Labor Taxes” indicator that actively discourages the provision of social protection programs by rewarding countries with the lowest level of mandatory employer contributions to non-wage benefits such as pension plans, healthcare, unemployment insurance, and maternity leave.

And it continues:

According to an announcement posted on its Doing Business website, Bank Management yesterday sent a memo to Country and Sector Directors informing them that staff are to be notified that “the EWI does not represent World Bank policy and should not be used as a basis for policy advice or in any country program documents that outline or evaluate the development strategy or assistance program for a recipient country.”

This is a massive change in approach. It is extraordinarily welcome.

But lets also be clear: there is a massive rebuff in here for PWC. It is their ‚ÄòTotal Tax Contribution’ methodology that drives the Paying Tax Indicator. They co-brand it with the WB. And the WB has made clear that this too is to be re-examined. Quite right too. I have long been a big critic of this indicator and methodology, which is fundamentally flawed, and horribly biased to VAT – which is deeply regressive and wholly unsuitable for the uses PWC propose for it through the World Bank.

There may be light at the end of the tunnel!