2011 September » Tax Research UK

Will play.com be turfed out of Jersey?

Sep 212011

The following was announced this morning on TechRadar:

Play.com, one of the UK’s biggest e-tailers, has announced that it is to be bought by Rakuten, a Japanese company that specialises in e-commerce.

The surprise takeover was announced this morning with news that the two companies have entered into a ‘definitive agreement’, where Play.com will be acquired by Ratuken for £25 million (approx. 3.3 billion yen) in cold, hard cash.

I hope the purchasers know what they’re doing. Pay.com is one of the biggest abusers of the UK’s VAT system through it’s abuse of low value consignment relief where goods worth under £18 are sent to the UK VAT free.

Now that is still legal (although wait for reforms this autumn) but some time ago Jersey agreed to stop the island being used by non-Jersey owned companies for this purpose precisely because it’s considered abusive.

Now play.com won’t be Jersey owned.

So will they be turfed out now?

Interesting idea. One for the new owners to watch out for maybe. I’d have a warranty on it in the deal if I was them.

We’re in for a miserable Christmas and a grotty New Year

Economics 5 Responses »

Sep 212011

Larry Elliott has summed up what the IMF said yesterday rather pithily:

The IMF has plenty of advice for those running the global economy. It thinks central banks should be cutting interest rates where that is feasible, and that they should do more quantitative easing where it isn’t. It thinks finance ministries should be prepared to ease up on the pace of deficit reduction if growth disappoints. It wants Europe to get its finger out. It wants banks to be provided with bigger capital cushions. It wants Democrats and Republicans to start acting like grown-ups.

Will those things happen?

No, not on present expectations; most especially the last.

So let’s talk about what’s really going to happen.

First the UK is growing at 0.2% per quarter at most. That cost 111,000 jobs last quarter and that rate of job loss will accelerate as employers realise that there is no point hanging on to staff now because the up turn is just not going to happen. We’re looking at rapidly rising unemployment here in the UK soon.

With that rising unemployment any hope of tackling the deficit fades away. More cuts will follow and a vicious cycle of downturn will escalate.

As people then hang on to cash investment will virtually cease: people have given up on the future, as has our government.

With such slack in demand the problem very soon will not be inflation – it will be deflation. We’re already seeing that in wages. It may well happen within a year on prices. If so investment collapses again – with near zero interest rates there is then no incentive to invest as deferring spending always pays.

But with deflation real interest rates actually becomes markedly positive – so the cost of investment also rises. Which is another reason not to do it.

The net consequence? More people out of work, and the downturn increases and depression deepens.

The IMF know this. They can see it is starting. Anyone with sense can see it is starting. It is why they are saying countries like the UK, Germany and US where there are opportunities to spend should spend. It’s not just for our sake we need to do this – we need to do this for the global economy.

And what if we all refuse?

Well, there will be mass unemployment.

There will be real hunger.

Fear will pervade.

Hope will cease to be.

There will be a failure in the social fabric of our society.

That’s what will happen. It’s happening now in Greece. If there is any similarity between Greece and us (and there are very, very few) it is that frightened people will react the same way – and we have no idea where that will lead.

This is not just a fight to save the economy.

This is a fight to save work.

And it’s a fight to save dignity.

And to prevent poverty.

But most of all this will become a fight for democracy itself.

And in my opinion those opposing Plan B are now making their choice: the choice to abandon our democratic way of life. I have no doubt this is the Republican agenda in the US. I think it the agenda of the Tea Party elements in the Tory party here, all of whom relish this as an opportunity to overthrow what they call the tyranny of democracy with its demand that the rich pay tax.

This is not therefore just a debate on economics. It is something much more profound than that.

And none of this is necessary: we can have government intervention to solve this crisis and to build the society the people of this country clearly want, which is stable, sustainable, secure and free. We may all earn a bit less, but we might have a Happy Christmas and a New Year with the prospect of real prosperity. Neither are on offer now, but that’s the choice this government has made. Never forget it.

Let’s not beat about the bush: Hartnett did dodgy deals

HMRC, Tax avoidance, Tax gap 16 Responses »

Sep 212011

As the Guardian reports this morning:

Britain’s most senior taxman has admitted making “governance errors” when agreeing multibillion-pound settlements with large companies.

Dave Hartnett, HMRC’s head of tax, has conceded that Revenue officials did not follow correct procedures in two high-profile cases that could have left taxpayers millions of pounds out of pocket.

Bluntly, although I make no suggestion at all of personal wrong doing it is now very clear that Hartnett did not follow the rules on Vodafone and Goldman Sachs and both got away with millions or even billions in tax as a result, and we still have no way of finding out way, and what action is being taken to put matters right.

In that case where UK Uncut right to protest that something very serious was going wrong inside our tax system? Unambiguously, yes they were – not least because this would not have come out otherwise.

And are those who say the tax gap is much bigger than it need be because senior management at HMRC are firstly not doing what is needed to address it and secondly aren’t even making the case that they should be doing something about it justified? Absolutely yes.

There is a choice right now. We could spend £1 billion to recruit 20,000 new staff at HMRC to tackle tax evasion and tax avoidance. I believe that would yield at least £10 billion and maybe quite a lot more. It gets people to work too. And in the process it will help create a level playing field between honest and dishonest business and help close the deficit. It’s a no brainer. But it’s not happening.

That’s dodgy too.

HMRC needs radical reform – and unless Hartnett shows he’s up to the job soon he’s definitely a major part of the problem, and cannot be part of the solution.

US commits to joining the Extractive Industries Transparency Initiative

Country-by-country, USA 2 Responses »

Sep 202011

This news has just been released by the US government:

The Extractive Industries Transparency Initiative (EITI) has developed a voluntary framework under which governments publicly disclose their revenues from oil, gas, and mining assets, and companies make parallel disclosures regarding payments that they are making to obtain access to publicly owned resources. These voluntary disclosures are designed to foster integrity and accountability when it comes to development of the world’s natural resources. This Administration:

• Is Hereby Committing to Implement the EITI to Ensure that Taxpayers Are Receiving Every Dollar Due for Extraction of our Natural Resources. The U.S. is a major developer of natural resources. The U.S. collects approximately $10 billion in annual revenues from the development of oil, gas, and minerals on Federal lands and offshore, and disburses the bulk of these revenues to the U.S. Treasury, with smaller portions disbursed to five Federal agencies, 35 States, 41 American Indian tribes, and approximately 30,000 individual Indian mineral owners. By signing onto the global standard that EITI sets, the U.S. Government can help ensure that American taxpayers are receiving every dollar due for the extraction of these valuable public resources.

• Will Work in Partnership with Industry and Citizens to Build on Recent Progress. The Administration has already made important strides in reforming the management of our natural resources to ensure that there are no conflicts of interest between the production and the collection of revenues from these resources. Signing onto the EITI initiative will further these objectives by creating additional “sunshine” for the process of collecting revenues from natural resource extraction. Industry already provides the Federal Government with this data. We should share it with all of our citizens. Toward that end, the Federal Government will work with industry and citizens to develop a sensible plan over the next two years for disclosing relevant information and enhancing the accountability and transparency of our revenue collection efforts.

There are weaknesses in the EITI, but this is stunningly good news for an initiative only seen as being of concern to developing countries to date.

Now what about the UK joining too?

Followed by a commitment to country-by-country reporting?

Who is Jersey kidding when it comes to withholding taxes?

Jersey 12 Responses »

Sep 202011

As Tax-News.com has reported (straight from a press release, so I feel happy to copy it):

Jersey’s Comptroller of Taxes has remitted to EU member states a total of GBP4m in retention tax for the year 2010.

Retention tax is applied by Jersey paying agents and passed to the Comptroller of Taxes in accordance with the EU Savings Tax Directive, which requires withholding tax to be applied to the deposits of the residents of EU member states.

Under the terms of the Directive, 75% of the tax retained (GBP4m) is sent to the individual member states and the remaining 25% (GBP1.3m) is to be retained by the Jersey government. Due to the fuller effect of low interest rates, the amount of tax retained in 2010 is significantly less than in 2009 when GBP8.85m was remitted to the Member States and GBP2.99m was retained by the Treasury.

The collection of retention tax relies upon the co-operation of local paying agents. The Comptroller of Taxes and the President of the Bankers’ Federation are both happy that the process of exchanging information and the payment of retention tax is continuing to work extremely well.

Comptroller of Taxes, Malcolm Campbell, said: “I am extremely grateful once again for all the help received from paying agents, in particular banks, which bear the greatest burden as a result of these agreements.”

The Treasury and Resources Minister, Philip Ozouf, said: “As in previous years this shows that Jersey continues to honour the commitments that it entered into voluntarily with member states.”

Oh dear, who are you kidding Mr Ozouf?

Jersey Finance say that in December 2010 there was over £366 billion held in Jersey of which more than £160 billion was in cash and at least £30 billion of that was for EU depositors.

Let’s apply a rate of 2.5% to this cash (which is low for the balances in question) and generate a return of £750 million. Tax was withheld at 27.5% on average during the year. So tax withholding applied to £14.5 million of the interest paid and the rest avoided the tax charge.

So, applying tax to less than 2% of deposits counts as full cooperation does it Mr Ozouf? And opposing all measures that might extend the scope – or even opting for full information exchange like the Isle of Man and Guernsey also counts as full cooperation does it?

Please pull the other one. No one believes you, and the evidence as to why is clear for all to see. We can all see why you think this process is working well - because it’s very obvious it’s hardly really working at all whilst giving you an essential fig leaf of respectability.

And then you wonder why people are sickened at the continuing abuse you promote. Well, you shouldn’t be: the world can spot a sham when it sees one and your press release and all that lies behind it is just that.

No cut in Northern Ireland’s corporation tax rate for 4 years at least

Corporation Tax, Ireland, Uncategorized Comments Off

Sep 202011

This is welcome news from the Press Association:

Any future cut to the corporation tax rate in Northern Ireland will have to wait for at least four years, Stormont’s finance minister has indicated.

Sammy Wilson told MLAs he did not believe a reduction in the business levy, if one was made, would be implemented in the lifetime of the current Assembly.

The power-sharing administration is currently awaiting a Treasury decision on whether the power to set the rate will be devolved to Stormont.

I have been waging what might be called a pretty much one man campaign against such a cut from the safe distance of East Anglia and it looks like sense has prevailed and the cut will not happen.

I’ll count that another success – because in four years this issue won’t be near anyone’s agenda. Game over, I say.

And now let’s move on to stop Scotland committing the same folly.

Memo to the Extractive Industries: tell us what you’re doing in secrecy jurisdictions

Accounting, Country-by-country, Development, Economics, Uncategorized 3 Responses »

Sep 202011

As the Guardian reports this morning:

More than a third of the subsidiaries owned by major energy and mining companies including Shell, BP and Glencore are based in “secrecy jurisdictions” where company accounts are not publicly available, according to a report.

The study by Publish What You Pay Norway, which campaigns for transparent accounting among oil, gas and mining giants, claims that populations in resource-rich countries are losing out because they are unable to extract financial information from businesses operating on their soil or off their seaboards.

“Extractive industry giants’ corporate ownership structures, their use of secrecy jurisdictions and the lack of meaningful information they impart is a major reason why stakeholders in resource-rich nations often meet a wall of silence when asking questions,” says the report. “This makes it very difficult to hold their politicians and the companies that extract oil, gas and minerals to account.”

The report defines “secrecy jurisdiction” as a location where companies are incorporated but accounts and beneficial ownership details are not publicly available. The definition of a secrecy jurisdiction was based primarily on three sources: a list of offshore financial centres published by the International Monetary Fund; a list drawn up by the US tax collection body; and a secrecy index by the non-governmental organisation the Tax Justice Network. The report stressed that there was nothing in the companies’ behaviour that suggested that they evaded tax illegally.

Under those definitions, secrecy jurisdictions include the US state of Delaware, the Netherlands, Belgium and Ireland – as well as Bermuda and the Cayman Islands. According to the report, 10 of the largest extractive industry companies had 2,087 subsidiaries in secrecy jurisdictions. The 10 included Shell, BP and Glencore.

The report’s author, Nick Mathiason, said: “Extractive industry majors organise their ownership structure to ensure their revenues and profits are kept as far away from the source of their mines and fields and in a way that makes it all but impossible for citizens to get a true appreciation of the assets.”A spokesman for Shell said the company paid $15.4bn in corporate taxes last year and is a founder of a transparency drive for energy and mining majors.

The full report is available here. And yes, in the interests of full disclosure I should note I advised on its production.

What are the key issues the report highlights? First of all that when so much of the activity of these companies is hidden from view the need for country-by-country reporting is proven or it is impossible to hold them to account for what they do where, which is the basis of corporate transparency, corporate responsibility and accountability as well as the stewardship concept that directors of suc companies are duty bound to uphold.

Second, the project featured Bolivian and Ecuadorian journalists and campaigners who set out to get key financial and operational question to test whether country-by-country reporting is needed. They found they could not secure any material data on the operations of the companies surveyed in their own countries. The need for international cooperation to ensure companies are held to account locally has been proven.

Thirdly, a legacy resource from the project is the creation of a Web-based database which maps every subsidiary and its incorporation location owned by

ConocoPhillips

ExxonMobil

Royal Dutch Shell

Anglo American

Barrick Gold Corp

BHP Billiton

Glencore and

Rio Tinto

This will be available soon to academics, campaigners, journalists and other interested parties – although what it documents is in effect a series of questions – all of which start with “What do you do in this place and in this company?”

Lastly, it shows the extraordinary extent to which multinational corporations are willing to embrace complexity to avoid tax. Never doubt they like complexity when it suits them. Arguments to the contrary are simply spurious.

My congratulations to Nick Mathiason for undertaking this project and to Publish What You Pay Norway for funding it.

Buffett’s law is minimum tax law and we badly need it

Tax justice 27 Responses »

Sep 202011

Buffett’s law is an idea gaining traction in the USA.

Of course it is wrong that billionaire’s pay less tax on their overall income than their secretarial staff. The question is what do we do about it?

There are remarkably simple solutions, all of which suit the tax simplification agenda. First, we could abolish all allowances and reliefs for those earning over £150,000 a year. It’s really not hard to do and the case for doing so is glaringly obvious: why should we even now grant up to £25,000 of actual cash saving a year to those earning more than £150,000 a year who want to put cash in their pension funds when they are already incredibly well off and we could instead have a teaching assistant in a school? The choice is a no-brainer, surely?

Second, we could align the income tax and capital gains tax rates and at the same time reduce the capita gains tax allowance which is ludicrously higher than for income tax and easily transferred between spouses. Nigel Lawson did it; let’s do it again and began to tax wealth seriously as is essential if we are to build a just society.

Third, we need to set minimum tax rates if we won’t limit reliefs so that whatever your gross income there is a minimum rate of tax you will pay.

The net result? More tax paid and massive tax simplification.

Oh, and I’ll come back to the fact that we need to do this to multinational corporations as well later.

But let’s not for a minute pretend that these issues cannot be solved: they can be, and we’d have a massively simpler tax code at the same time which the rich always say they want. Put the two together though and they always bleat. Which always suggests to me how hollow their real commitment to tax simplification is.

You can’t fund growth from the petty cash tin

Uncategorized 5 Responses »

Sep 202011

I have now read what Vince Cable had to say yesterday (I was in court when he spoke).

Polly Toynbee has written well on this issue in the Guardian this morning, and we did discuss it yesterday.

The key issue is a simple one. Vince Cable is talking the talk but the reality is he is not in any way funding the walk.

If any government is to get us out of recession them it needs to have one aim and that is full emplyment. That is possible. It can be funded. I have explained why at length on this blog. For example, £20 billion of funding for long term investment in the UK is possible by simply demanding that pension funds provide the money in exchange for the much greater tax relief that they enjoy.

And what is more – we know that this will work. Putting people to work cuts government spending and raises tax revenue – statement so obvious no one can deny it. In that case such spending actually pays.

Which means Vince Cable should not be funding growth out of the petty cash tin which is what he is announcing right now.