2009 November » Tax Research UK

Lloyds facing £54m tax bill after HBOS ruling

Banking, Europe, Tax avoidance 1 Response »

Nov 162009

Lloyds facing £54m tax bill after HBOS ruling | Business | guardian.co.uk .

Lloyds Banking Group, which is 43% state-owned, has failed in its latest attempt to avoid a £54m tax bill.

In a new ruling last month, the judge, Howard Nowlan, disagreed with HBOS’s argument that the scheme was set up for commercial purposes, saying that emails shown to him “all confirm that this project was the acceptance by Treasury Services of a marketed tax avoidance scheme”. The bank said it would appeal the decision.

In May 2003, HBOS Treasury Services held various financial derivative contracts with the American insurer AIG, which had to be bailed out by American taxpayers at the height of the banking crisis last year. Keen to reduce its credit exposure to AIG, HBOS agreed to pay £2.2m to the insurer in return for AIG agreeing to monetise the swaps for £180m.

HBOS set up a new subsidiary called Dorus Investments, which was registered in the Cayman Islands to avoid UK stamp duty, and transferred the swaps to Dorus, which was then sold to Swiss Re for £150m.The scheme was designed to roll a £54m corporation tax liability into Dorus in the expectation that, the buyer of when Dorus was sold, the buyer would “somehow manage … to make the liability evaporate”, the judge said. “Treasury Services would then share the tax benefits with Swiss Re.”

HBOS Treasury Services thus recognised a deferred tax asset of £54m and, as a result of the transactions, recorded a pre-tax profit of £9m rather than a loss of £2.2m, the judgment shows.

The judge said he found it “absolutely untenable for it to be suggested that the eventual profit that it was hoped and expected would be made in this case was to be made in any way other than by avoiding the tax that would [otherwise] have been chargeable on a direct re-couponing of the swaps with a third party”. Of four disputed issues, Nowlan determined one in favour of the bank and the other three in favour of HMRC.

Good news.

Avoiding tax is not a business objective. It is abuse. Good to see this recognised.

Britain faces “revenue crisis” not a spending crisis

Economics, TUC Comments Off

Nov 162009

Britain faces “revenue crisis” not a spending crisis | Left Foot Forward.

Looks like I got blogged on what I said at the TUC this morning:

Tax expert Richard Murphy has told an audience at the TUC that Britain faces a “revenue crisis” and an “unemployment crisis” but not a spending crisis. He urged the Government to seek ways to increase tax revenue rather than cutting public spending.

True. I did. You can believe some blogs.

Gillian Tett: we cannot build an economy around Canary Wharf

Banking, Economics, TUC 5 Responses »

Nov 162009

Gillian Tett at the TUC:

Building an economy around Canary Wharf was nuts

and

Over the last few years the financial sector built a candy floss ec9onomny – finance resold products time and again to each other until a great big pink candy floss was built – all sugary and terribly sweet – and now it has imploded as candy floss does.

We must not do that again.

Agreed.

And as she also said:

Like oit or not spending will be vut after the next election – and that will have a significant impact on growth.

Call it turning recession into depression, I say.

John Kay, also speaking here, clearly seems to agree.

So why are the Tories planning to do this?

Rowan Williams at the TUC

Economics, Ethics, TUC 1 Response »

Nov 162009

I’m at the TUC this morning

So is Rowan Williams – Archbishop of Canterbury.

He says the Greek for economics is ‚Äòhousekeeping – and it is about creating a habitat for how we live. He calls that a habitat – a sustainable.

Peealing to the market as an independent authority unconnected with housekeeping ahs left a ruinous legacy of disruption, even in developed countries – and trading in toxic debt cannot be the basis for money making.

What would an economy look like if it were focussed on making and sustaining a home? Making a secure environment for all, in which we are free. If we gave up the temptation of unlimited growth so we could hand on a world to our children – real human beings – people who are as important as their material prosperity?

At the individual level we have to question what we mean by growth? GDP is a mechanical measure of wealth – and we have a limited material environment. By stimulating demand it creates rivalry and destroys the basis for long term well being – in a nutshell it is investing in the wrong things.

In reality there are only two sources of wealth – using the world’s resources and the human capital we can provide. The exhaustion of resources – the environment and human lostness from inhuman patterns of working can diminish both.

Short term returns can no longer be the sole deciding factor for decision making – quoting Tim Jackson. Also quotes Zac Goldsmith. He refers with sympathy to Green taxes.

And he talks of the Tobin Tax – we must not think of tax as an unreasonable burden or as a burden but as a tool for creating a long term economy – a habitat for our well being.

Zac, he notes, criticises the tax system – and that tax is not neutral so we must decide where it is to be. Must focus on our ability to decide, Our choices do matter. Our current economic ethos is resources are unlimited – and yet that theory paralyses us when thinking about real change because we are told much is not possible.

To decide what change we want we must know what a human life well lived looks like.

Family, imagination and mutual sympathy. We start in dependence. We must learn how to speak and trust, must be secure enough to risk learning, where some things are unconditional. The human family is essential for this. The working culture undermines this and is one that leaves everyone more vulnerable and defensive – and more violent, even if inward on the creation of depression.

Anxious and driven adult lives and some employers promotion of family hostile patterns of working all harm young people. We need to start with the family as the basis for our choices.

Imagination is also important – we take in the world around us. We are aware things could be different. We play in adult life too. It is these extra that make us human. Making a living is not enough to be human. The Labour movement has been committed.

So how far do economic decisions help keep this space to think things might be different?

Ho do we respect others? If you are the centre of well being – how do you care for others? This is the world of economics where calculations of self interest is key – this builds a box room for paranoia.

People genuinely don’t want this. People want to network – to be friends – look at social networking!

We have to promote thoughtful empathy. Without that we cannot flourish.

He thinks this will not be controversial to the TUC – and we need to defend it, very strongly. This requires commitment. His is religious – but that is not his message – we all need to have a commitment to the family – in which we have an unconditionally of commitment from a parent.

Human mutuality complements with the Christian belief of being all dependent on one another’s gifts.

He makes clear Christianity is not essential to this – but in the economic and political context we have to spell out our commitments –0 we must say what we really want. Politics by managers and brokers is a recipe for societal bankruptcy.

He suggests we are all shy of putting foreword moral judgement (well, he might be – I’m not) and he says we must resist that with vision. This vision must be the centre of where we are going. Religious people are seeking to open the arena of discussion – to help push back against injustice,.

He looks to the future – and the potential nightmare scenarios that could develop. He clearly believes that possible – be3casue the earthly world seems to take for granted that exploitation is acceptable,.

Without a stable economy he says the rest is idle dreaming – and without stability there is nothing – which means we must question growth.

We need to reclaim the word virtue as a description of desirable human behaviour – as a concern for balanced human welfare.

Without courage the capacity to put your own desires in perspective there is no stable world – no household to keep – no economy.

The labour movement can bring these virtues back to visibility. He urges the TUC to revive the passion for humane social existence – to ensure stability and justice prevails and to resist the barbarising impact of economic life.

Revive that sentiment. Reflect on how to do it. Resist the alternatives.

NB: Written as he spoke – apologies for any remaining typos

How do we beat poverty

Corruption, Country-by-country, Development, Secrecy jurisdictions, Tax evasion, Tax Havens 2 Responses »

Nov 162009

World Vision have sent me a briefing on a new campaign they are launching. I guess a blog has reached critical mass when such things

happen.

They say this World Vision aims to cut child deaths by two thirds in order to reach the Millennium Development Goals. and note:

¬? 8.8 million children die each year before the age of five, which equates to 24,000 deaths every day.

¬? The main causes of these deaths are largely preventable – an estimated two thirds of children could be saved through simple interventions such as low-cost vitamin and mineral supplements to prevent malnutrition and comprehensive postnatal care to prevent post pregnancy complications and infections.

¬? Rich countries need to increase their commitment to health from the current level of $16 billion a year to $42.5 billion by 2015 if they are to meet the Millennium Development Goals` outlined in 2000 – this is equivalent to five days of health spending in the USA.

¬? Progress and change is possible. Even in some of the poorest countries, significant progress has been achieved. For example, the improvements accomplished in Malawi, for every 1,000 babies born, 125 more children survived to their fifth birthdays in 2008 than they did in 1990.

These facts are shocking. I share the concern for them. They motivate a lot of what I do. It’s unacceptable that More than 24,000 children under the age of five die every day.

I’m not sure World Vision – a US charity – has got its analysis right though. They’re right to say:

World Vision believes that simple, proven measures – most of them low cost, such as vitamin and mineral supplements to prevent malnutrition and improved water and sanitation systems to give more people access to a treated water supply – can transform the opportunities of the world’s poorest and most vulnerable children.

The World Bank estimates that a further 2.8 million children could die between now and 2015 unless immediate action is taken, adding further urgency to the challenge of child health.

And this has truth in it:

Many of these problems persist due to political inaction and misdirected effort – they fail to attract much comment, or spark outcry from media, politicians and civil society. In short, the global child health emergency is too often greeted with fatal indifference from those people with the power to address it.

It only has elements of truth in it because they go on to say this:

The epicentre of the child health emergency is sub-Saharan Africa and South Asia, with approximately half of all deaths accounted for by just five countries: India, Nigeria, the Democratic Republic of Congo, Pakistan and Ethiopia. Without a concerted and sustained effort in these countries, there’s little prospect of MDG 4 being met at a global level.

Most high burden countries are poor, and many are poorly governed. All of them are characterised by high levels of health inequality, between rural and urban areas, and between rich and poor. For example, in Nigeria, children from the poorest fifth of the population are three times more likely to die than those from the wealthiest fifth. Reducing the health gap between rich and poor even within the poorest countries would have a dramatic impact on overall mortality rates.

In response to which they say:

The main drivers of change have to come from the developing countries. Experience tells us that significant change is often underpinned by popular demand and informed public debate. However, countries which are poorly governed and ill coordinated with levels of internal corruption need help to make these important changes.

I do not for a minute doubt World Vision’s plan for enhanced nutrition, maternal health and the prevention of easily controlled childhood diseases are all valid. My concern is that this is seen as a process of aid. And it is seen as a process in which developed countries take a lead. and it is seen that, without explanation, health inequalities, which are inextricably linked to wealth inequalities will be solved, as will corruption by the great hand of western largesse.

If only that were true. I applaud all efforts to solve these problems: World Vision’s motives are sound. But they have to ask:

Why is there inequality?
How can it be addressed?
How does the corruption take place?
Who facilitates it?
Where do the proceeds end up?
How can we stop that process?

The answer is, of course, that there is a market mechanism to facilitate these outcomes: the secrecy jurisdiction market.

Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

It is secrecy jurisdictions that allow corruption to happen. They facilitate it, provide the mechanisms to let the funds flow, and provide the secrecy to ensure it is never discovered.

Yes, World Vision are right – this is a developed country problem. We have to close secrecy jurisdictions.

Then with country-by-country reporting we have to help force profits to be declared and tax be paid in these countries. Then they can overcome their own problems.

That is the only real solution.

I am posting this to show solidarity with World Vision – but am asking in return that they face the really big issue of why developed countries help strip the poorest nations on earth of their wealth and return what little goes back to the wealthiest who have no need or entitlement to it.

I hope they will rise to that challenge. Because if they don’t they too are guilty of turning a blind eye – and that won’t do.

If the City thinks a Tobin Tax is possible why do the dogmatists disagree?

Economics, Transaction tax, TUC 1 Response »

Nov 162009

The Guardian has noted:

The controversial tax on financial transactions endorsed by Gordon Brown and Lord Turner, the top City regulator, was last night beginning to garner the support of leading financiers for the first time.

The idea of a Tobin-like tax was embraced by outspoken City figure Terry Smith as well as by Sir Philip Hampton, chairman of the Royal Bank of Scotland.

Smith, chief executive of the money brokers Tullett Prebon, told the Guardian his support was based on similar factors. "I’m in favour of some form of Tobin tax. There are elements of financial services that have become over-large and have no social purpose," he said.

Smith admitted he did not know how the tax would be set or levied but scorned those who said it would be too difficult to impose without international agreement. "It is possible to get international agreement on very difficult subjects," he said. "I think the vested interests of those saying it can’t be done are a bigger obstacle."

Smith’s endorsement came after Hampton backed a similar levy, which he suggested should be in addition to changes to capital and liquidity requirements, which will also increase the cost of banking.

I added the emphasis. It is a suitable riposte to those who have said in thne last week that the TUC support fro such a tax has been ill0-informed. I could not disagree more and it is clear that those w lot more experienced than those dogma driven cr4itics concur.

Adam Lent of the TUC makes a similar point:

The TUC call to use a tax on major financial transactions to help reduce the public deficit has created a minor blog bust-up. But one important point at risk of being overlooked here is the question of what might be the alternatives to a transaction tax.

The TUC believes that the deficit is not an urgent problem but it is one that will need to be dealt with over the medium term. In our submission to the Treasury ahead of the PBR, we argue that any measure designed to reduce the deficit needs to meet five criteria. It must be:

effective: any measure must genuinely reduce the deficit;

progressive: the costs of any measure must fall to those most able to pay;

proportionate: any measure must meet the reality of the challenge posed by the fiscal problems rather than any exaggerated or understated claims;

limited in its economic consequences: any measure must not prolong the recession of threaten recovery;

just: the costs of any measure should not fall on those who bear no responsibility for the financial crisis and recession that has caused the fiscal problems.

Our concern is that the leading contenders for addressing the deficit – major public spending cuts, a big rise in VAT or a big rise in income tax – fail when judged against these criteria. A transactions tax, we felt, did meet most of these criteria. I accept not everyone will agree with that conclusion but given that we are in a tough fiscal situation, there must be a certain obligation on those entering the fray to identify their alternatives and explain how they meet these criteria.

Of course, they may not agree with the criteria but then they need to explain that position as well.

Quite so when closing comments on this issue on my blog I said:

[W] is curious to note is not one person has said [the tax the TUC propose] should not happen. All you have argued about (if I recall correctly) is the rate

So it may be introduced at less than the proposed rate – even at one fifth of that rate it could make a valuable contribution to closing the fiscal deficit – and it could be ratcheted up from there

But has the case for the tax been made? Yes, undoubtedly. And why? Because the only counter argument is that the neo-liberal view of markets must prevail. Nothing more, or less

And if the best that the opponents can come up with is that such a tax impedes the free flow of the market to do whatever it will they really have lost the argument. It seems to me that debate is over As the Guardian notes, even the new Lord Mayor of London says:

In a dramatic change of tone from his predecessor, the financial district’s mayor, Nick Anstee, will today tell an audience that includes the prime minister: "We need to re-establish a contract between the City’s financial institutions and the society they serve. This is right because society, the taxpayer, has just picked up an enormous bill for failings."

He’s right.

A Tobin tax would help pay for that. A UK based version is completely possible. Details will be refined, no doubt, but the case is now made. Only gthe timing really need be in question.

Note: I advise the TUC on tax issues

A tax on empty houses

Economics, Secrecy jurisdictions, Tax evasion, Tax Havens, Tax management, TUC 20 Responses »

Nov 152009

The Observer has reported:

Alistair Darling should levy a £5bn "empty property tax" on up to a million homes left vacant by absentee landlords, to help meet the costs of the financial crisis, trades unions will argue tomorrow.

The TUC wants the chancellor to charge five times the usual council tax – an average of £5,875 – on homes standing empty to persuade owners to sell or let them. It would like to see overseas landlords charged UK income tax on rental payments unless they can prove they are paying it in their home country.

Brendan Barber, TUC general secretary, will use a speech to an economic conference in London to argue that the number of homes standing empty, thought to be a million on some estimates, is a national scandal.

"Across the UK, the queue for social housing is growing. In London especially, a chronic housing shortage is pushing prices well above their pre-recession levels – and out of reach of many potential home owners.

"How can it be fair then that a million houses lie empty across the UK? These properties – often bought for purely speculative purposes or as a vehicle for tax avoidance by overseas landlords – contribute to our housing crisis and fiscal deficit."

In its submission to the Treasury before Darling’s pre-budget report on 9 December, the TUC says the chancellor should use tax measures, as well as public spending cuts, to deal with the government’s deficit ‚Äî and ensure that the rich bear their fair share of the burden.

So let’s get the caveats out of the way first of all:

a) Of course short periods of inoccupancy would not count – indeed up to a year should not be questioned

b) But second properties should count as vacant and be subject to an additional charge – even if at a lower rate than that suggested for wholly vacant property – because you can’t live in two properties at once

c) Holiday lets should not count as vacant – but only if really let. They do play a role in the tourist economy

d) There should – as with some rules in capital gains tax – be room for appeal in special circumstances

These noted, the proposal makes complete sense. We have a shortage of housing. That housing is needed now. The UK has a stock of available housing that is being withheld from the market. By pricing it into the market valuable resources are saved, need is met and planning stress is reduced. The increased supply of housing will also reduce house and letting prices: another social gain.

As such the potential gain for society from changes in behaviour promoted by this tax is enormous. And if the tax yield falls as a result – so be it. That is part of the intention.

And dealing with the offshore landlord issue – evidence is available that many occupied and rented properties are now being registered through offshore, tax haven companies registered in locations such as the British Virgin Islands, Jersey, Guernsey and Switzerland. For all practical purposes it is almost impossible to determine who really owns these companies. The reality is that they could be owned by UK resident people who are hiding that fact by registering these properties in the names of tax havens companies.

Anecdotal evidence from HM Revenue & Customs also suggests that although there is a requirement that a non-resident landlord company be registered with HM Revenue & Customs this scheme has become a virtual rubber stamping exercise: enquiry is not made as to the beneficial ownership of the companies that apply to receive rent from the UK without taxes being deducted at source and a list of properties the landlord owns is not demanded.

That is why the TUC suggests that unless an overseas landlord who is an individual is willing to prove that they have paid tax in their place of residence on the rent they will receive from a property in the UK then tax at basic rate should be deducted from all payments of rent made to them either by their tenant or their letting agent. Procedures to do this are already in existence, but it is at present possible to apply for gross payment of the rent without ever proving that tax is paid elsewhere on the income arising. This should now change and tax should be paid in the UK in the first instance until the income can be proven to have also been declared elsewhere (an exception being made for EU residents).

And, in the case of the non-resident landlord being a company there should be a different requirement. In every such case tax should be withheld at source on the grounds that the property in the UK represents a taxable branch of the company in the UK. That tax withheld should be required to be paid to HM Revenue & Customs at least quarterly, but with the right to make application for repayment at the year-end if it can be shown that the tax due on a properly computed profit was less, but then only if the full beneficial ownership is reported to HM Revenue & Customs with evidence of the standard required by anti-money laundering regulations being submitted as evidence e.g. copy passports as proof of identity and utility bills as proof of place of residence. This would curtail the massive risk of tax evasion in this market through use of impenetrable offshore companies.

The final change would apply in the case of offshore companies owning property in the UK that had not proven the identities of their owners to HM Revenue & Customs: in such cases capital gains tax should be assessed on sale by requiring that 20% of all sale proceeds be paid as tax unless full beneficial ownership of the offshore owners of the company are provided and tax computations submitted with tax still then being due on the resulting profit.

This policy has four critical objectives:

1. To increase available housing stock

2. To bring down its price

3. To tackle tax abuse

4. To target offshore abuse

All are key objectives for any government. This is why this tax makes sense. And it will also raise significant revenue from a source that largely avoids and evades it now: that is the added bonus that should sell it to any Chancellor.

Disclosure: I advise the TUC on tax issues.

East Coast rail back in public hands

Economics 34 Responses »

Nov 142009

Midnight express – East Coast rail back in public hands | ToUChstone blog: A public policy blog from the TUC.

Trade unions want the East Coast franchise back in public hands permanently.

So do I.

The franchise experiment has failed.

Rail has to be run for the public good as a not for profit enterprise – which would not, of course, preclude profit being made.

UN corruption convention rendered toothless

Corruption Comments Off

Nov 132009

The following has been issued by Christian Aid, Global Witness and tear Fund and is too important not to note:

Doha: A handful of countries are responsible for the failure of a crucial meeting to agree to an effective mechanism that would give a global anti-corruption treaty real power, said Christian Aid, Global Witness, and Tearfund today.

China, Russia and Egypt are among the governments who have weakened proposals for a peer review mechanism designed to ensure signatory countries to the UN Convention against Corruption (UNCAC) live up to their commitments.

”A huge opportunity to turn rhetoric into action has been lost due to the irresponsible behaviour of an unlikely coalition of blocking countries”, said George Boden of Global Witness.

”Corruption is one of the main reasons that countries remain poor, as government revenues disappear into the pockets of corrupt officials, whilst the poorest are denied access to healthcare, education and a decent living,” said Laura Webster of Tearfund.

“This fudged agreement begs the question: what do governments have to hide?” said Adele Poskitt from Christian Aid.
The UNCAC includes a package of measures to tackle corrupt practices, including bribery, embezzlement and money laundering. But without a strong peer review mechanism, there is no way to enforce compliance.

This week’s meeting was the opportunity to agree that mechanism. But, in the face of opposition from a number of governments, countries have settled on a weak compromise that does not ensure transparency or accountability.
Under the agreed mechanism, review teams will have to seek permission if they want to make a country visit or talk to those outside of government. The participation of civil society is not guaranteed. Even other UNCAC members will not have access to the full findings of the review teams. A weak review mechanism will mean that corruption will continue to blight the lives of people in poverty.

“This represents a significant setback for UNCAC. The failure to agree to a transparent and inclusive review mechanism will result in a huge loss of momentum for global anti-corruption efforts,” said Webster.

“Without effective anti-corruption safeguards, the funding urgently needed to tackle development issues, such as climate change, may be siphoned off not reaching those most in need,” said Poskitt.

“Shamefully, a handful of countries have rendered UNCAC toothless,” said Boden.

Corruption costs lives, causes misery, destroys well being and blights the hopes of billions.

Those who have blocked progress should have this on the consciences.

If they have one.