Tax Research UK

There’s a lovely page on the States of Jersey Treasury Department website that says with regard to its new law allowing the establishment of foundations:

Foundations (Jersey) Law 200-

Advice for Jersey residents considering registering a ‘Foundation’

It is advisable that, if a Jersey resident is considering registering a Foundation or has any interest in a Foundation he or she should provide the Income Tax Office with full details as to the reason(s) for doing so and the purpose of the Foundation and seek pre-clearance from the Comptroller before going ahead.

Failure to do so will lead the Comptroller to take the view that creating a Foundation has as one of the purposes, or the main purpose, the avoidance of Jersey tax.

The Comptroller will counteract such avoidance under the provisions of Article 134A of the Income Tax (Jersey) Law 1961.

Comptroller of Taxes

12 December 2009

So now we have incontrovertible proof: Jersey has deliberately created a structure for the use of those not resident in its jurisdiction which it knows has the sole or main purpose of tax avoidance (at best) which they consider best tackled by use of a General Anti-Avoidance Principle (for that is what their section 134A is).

If you wanted proof that everything I and others have said here over many years is true – here it is.

This proves Jersey is, without doubt, a secrecy jurisdiction. 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.

How can any place claim to be internationally cooperative or compliant on tax when this is what they knowingly, deliberately and wilfully do?

Note the phrase 200- simply means the final date on which the law is to be approved by the UK’s Privy Council on behalf of the Queen has yet to be advised.

Richard Murphy Ethics, Jersey, Tax avoidance

The BBC and many others report:

The singer and activist Billy Bragg has threatened not to pay his taxes in protest against the bonuses being paid out by Royal Bank of Scotland (RBS).

He is calling on the government to intervene and limit the proposed £1.5bn that the bank, which is 84%-owned by the taxpayer, wants to pay in bonuses.

Mr Bragg said he felt frustrated and powerless to stop the bonus culture.

"We have a short window of opportunity between now and 31 January, but the two main political parties don’t seem to be interested," Mr Bragg told the BBC.

"This is a frustration borne out of a sense of powerlessness in the face of the bonus culture. I don’t know what else to do," he said.

I understand that frustration. And what Billy Bragg is doing is great gesture politics. But as I’ll say on air on London’s LBC radio in a few minutes, it’s not ultimately good politics.

I do think the ballot box is the way to present this message.

I do think lobbying parliament and meeting MPs is the way to go forward.

I do not approve of ‘tax strikes’ – the result could harm the poorest in our society. And it could harm the well being of public servants.

So now the gesture has been made I suggest tax is paid. And then use every democratic means possible to pursue the issue. Which should indeed mean limited bonuses, full nationalisation of RBS so it can be used as the proper basis for full banking reform  and an end to the abuse that modern banking represents.

Richard Murphy Banking, Ethics

FT Alphaville » Cadbury, Kraft sweeten up.

It’s a long time since Cadbury was a Quaker business. But somewhere deep down it still thought it was.

About a decade ago I was involved in writing Good Business: Ethics at Work - Advices and Queries on Personal Standards of Conduct at Work

It’s a different world view. And we’re poorer for another, even remote exponent, disappearing.

Richard Murphy Ethics

I have written many times on this blog about the anti-democratic philosophy of those who promote tax havens. This, I think, reflects the attitudes of the big banks, lawyers and legal firms in our society, all of whom di in my opinion work to deliberately undermine the taxation revenue due to elected governments in a deliberate attempt to undermine their mandate to govern.

Sometimes this is explicitly confirmed. Take this comment on the blog from a right wing libertarian (most of whose comments, I admit, I block):

I condone invdividuals keeping the sweat of their brow and/or spreadsheet. “Breaking” laws which are unjust (e.g.. taxation as currently practiced by many governments around the world) is not a crime, it is an individuals right (bordering on their duty).

Just as I would condone the freedom marchers in the southern US “breaking” laws or refuseniks “breaking” laws behind the old iron curtain.

Tyranny and authoritarianism (even if it is just a little for our own “good”) as practiced today needs it up ‘em at every turn.

Much the same thing was said at a recent Cato Institute conference in the USA by  Veronique de Rugy. Richard Teather, a UK chartered accountant, lecturer at Bournemouth University and commentator for the Adam Smithj Institute and Institute for Economic Affairs has also said much the same thing (page 81) when discussing attacks on tax havens by democratically elected governemtns:

This is attacking a classic use of a tax haven, as explained in the previous chapter, in which a person resident in (or otherwise subject to the taxation system of) a highly taxed country places his capital in a tax haven where it can earn untaxed income. While there are many cases where the home country does not tax foreign source income (such as the UK’s non-domicile exemption discussed above), most Western countries have a worldwide taxation system that seeks to tax the worldwide income of its residents (or all of its citizens in the case of the USA). This tax haven income therefore does not cease (legally) to become liable to tax merely by being earned offshore: it is still liable to tax and the investor has a duty to report it to his home tax authority. In practice, however, if the investor does not report his income, then the home country can have great difficulties in discovering and taxing it, particularly if the haven country has strong banking secrecy laws.

While I am not seeking to condone dishonesty or criminal activity, from an economic perspective this is merely another example of tax competition: indeed, it is often necessary behaviour in order to take advantage of tax havens. Without the willingness of some to engage in this sort of activity, tax competition would be much less effective and therefore reduce the benefits that flow from it for the rest of us.

I added the emphasis: what I think he is doing is condoning criminality.

This is supposedly done, you note, top preserve the right to property. This, however, is an entirely false argument. Since property rights are inseparable from the duty to pay tax - both coming from the same source and being indivisible -  the right to hold property is equally and exactly matched by the duty to pay tax. So anyone arguing a tax is not legitimate has at the same time to say property rights do not exist or that government is illegitimate. Those are the options.

I think that is what is being said. Those from the right and the financial elite who seek to justify tax crime and the avoidance of obligations to government seek to undermine the state and the society we live in. we need to be aware that the choices to be made are ultimately as blunt as that. And it is the very essence of society that we are arguing for when we defend the right to tax.

Richard Murphy Ethics

FT.com / Columnists / Samuel Brittan - A fresh look at liberalism.

Samuel Brittan writes:

Many socialists and social democrats regard the negative definition of freedom as far too narrow and ask whether someone can be really free if he or she has not enough to eat or is deprived of the opportunity of a decent education. The confusion arises from the attempt to derive all public policy from one central goal. Freedom is not the same as prosperity, equality, self-government or any other desired state of affairs. These goals may sometimes be complementary, at other times competitive.

Of course those goals are competitive. There is no issue concerning rights where conflict does not arise.

But when rights relate to fundamental pre-conditions for survival then the reason why social democrats believe there is one central guarantor is simple: there is only one such guarantor.

Brittan implies there might be two, the second being the market. But that is not true. By definition the market requires failure - include failure to command sufficient resource to survive. History is littered with examples. Just before John Stuart Mill’s wrote On Liberty in 1859 the British government had allowed the potato famine to happen in Ireland because the market demanded it.

If a person believes, as I do,  that each person is of equal worth then the only guarantor that they will have opportunity to explore the opportunities that gives rise to is the state.

It will not always get that process right. The state is made up of human beings who will make mistakes. And of course it is possible that the state will restrict the chance to explore the opportunities  life offers when basic need has been met too significantly on occasion. I accept that is a risk because I also believe the market has a clear and important role in letting people make choice to fulfil their potential. The boundary between market and state is just one of the problems of competitive goals.

But I’d always argue that it is better to get this balance between the state and market a little wrong on occasion that than not try to ensure basic standards for all.

Which is why Brittan is wrong. He’s not a liberal at all. His view of liberalism is promotion of the freedom to take advantage for some at direct cost to, and even at direct risk to, others. And that’s not acceptable. Because that’s not freedom. That’s the exact opposite: it is the promotion of the climate of fear.

Richard Murphy Ethics

A commentator on this blog has criticised me for suggesting that aspiration cannot change outcomes in society. He says, in response to my blog on education, here:

For example, you say “Aspiration cannot be dealt with when there is nothing to aspire to unless you are in the top 10% (or less)”.

If this statement is true then I am puzzled as to how the Labour and Co-op movements etc developed and using a more recent example, how Nelson Mandela came to lead an African country.

First, let me dismiss all argument based on comparison with Nelson Mandela. The man is an exception to all rules.

And let’s also not confuse the current environment with that which existed a century and more ago: things have changed a lot. Which is my point: things have changed so much that for most there is nothing to aspire to in our society: intuitively some young people are not aspiring in the way the education system (and the neo-liberal market infrastructure) assumes desirable for two reasons.

First of all an increasing number question the relevance of aspiration when all it seems to entail is excess consumption that is destroying the environment paid for with a burden of debt that will last until retirement, and beyond. Quite reasonably they ask if that consumption is the real meaning of being and whether that debt is a burden worth enduring to suffer that lack of meaning. Some, and it is an increasing number, are clearly deciding to opt out of that system. They are quite rationally not aspirational in the way the market system demands they be.

Second, intuitively many people know that there is no point in being aspirational when the prospect of success is very, very low indeed. Real wages for most people in the UK have hardly advanced in decades. Nor has real wealth – unless you are in the top 10% of income earners – and even then most of the advantage goes to the top 1%. The gap between the richest and poorest is widening. The chances of breaking out of your social situation and advancing up the materially measured social hierarchy – which is presumably what aspiration means in this context – is reducing rapidly as social mobility declines in the UK.

Of course people don’t measure this sort of thing – but all around them they see and hear the evidence that this is true – that you are, in the vast majority of cases, stuck where you are. Even things that used to appear normal – such as buying your own home – are now beyond the means of a significant part of the population. They will never be able to own the one thing most people have always aspired to because the price is way beyond the means of people on above average, let alone average, incomes in the UK.

And if you can’t aspire to this rather basic standard of security – which the rented sector cannot emulate in its current form – you are forced to adopt a very different view of what life is going to be about.

Comparing to the early 20th century and late 19th century is in that circumstance little short of absurd. It was then vey obvious that aspiration would bring reward. But now you can seek to secure a sensible and useful job, have a partner, and find yourselves under a mountain of debt with young children in a home too mean to allow you to live well (which is the standard offering now put up by market driven builders) and face a life of misery as a result. So why bother?

This is the problem for the next decade. If we cannot solve this and give people reason to hope again we’re in very deep trouble.

There is no chance whatsoever that the market will do that.

It’s the market, after all, that has killed aspiration by denying its rewards to most people.

And the result is not just a loss of aspiration, but a world of insecurity and fear. Fear on the part of those denied hope as to what might happen to them and fear by the minority that have command of resources about how they can hold on to what they have – and maintain the difference between them an the rest of society (which is, for example, what the whole private school market is really all about).

This is the challenge social democrats have to rise to and resolve. I doubt if anyone else can or will.

Richard Murphy Economics, Ethics

Powerful people more guilty of ‘moral hypocrisy’, study finds - Telegraph.

Experts say that these so-called “powerful people” also make stricter moral judgements of others - while doing exactly as they please.

Professor Adam Galinsky, from the Kellogg School of Management at Northwestern University in Illinois, said:

“According to our research, power and influence can cause a severe disconnect between public judgment and private behaviour, and as a result, the powerful are stricter in their judgment of others while being more lenient toward their own actions.

“The past year has been marked by a series of moral transgressions by powerful figures in political, business and celebrity circles.

“And this research is especially relevant to the biggest scandals of 2009, as we look back on how private behaviour often contradicted the public stance of particular individuals in power.

“For instance, we saw some politicians use public funds for private benefits while calling for smaller government, or have extramarital affairs while advocating family values.

“Similarly, we witnessed CEOs of major financial institutions accepting executive bonuses while simultaneously asking for government bail-out money on behalf of their companies.”

I guess we knew all that really.

But we need to have it said time and again.

Precisely because we need to remind those in power that we know it.

Richard Murphy Ethics

Christmas and New year are times when you meet people who you don’t expect to meet again for some time, if ever, again. The result is that they are times for candid conversation with guards let down.

I had one such conversation over Christmas that seemed to summarise many similar snippets I’m hearing from a wide variety of sources. The person I was talking to (who will remain nameless) was referring to the attitude of senior management in the organisation for which she worked. As the person was, I established, very senior in that organisation, the observations were informed by an insider’s perception.

My conversational partner was disturbed. A mood of perverse bullishness had taken over the management of the organisation. This was not based on any market perception. Far from it. Nothing suggested that things were going very well out there in the real world. She was worried about this. But her colleagues were not. They were on acting as if on a high.

Their talk is, apparently, continually about how the staff now have to be grateful to them for having a job. They talk continually of making people redundant. Selected people are already being weeded out – new mothers seem to be the latest target. Two maternities and you’re out seems to be the rule. And despite the business remaining more than acceptably profitable the Christmas party was cancelled – as were bonuses. Except for the directors that was. They dined and bonused away – which they staff, inevitably knew because like it or not accounts departments and PAs. The resulting resentment is widespread.

But no one can say anything. The inner coterie (all male) of  bosses have complete power now: argue and you’re out is the message  they are giving to all.

The person with whom I was talking was in despair. She can see good people planning to leave – quite understandably. And even in this job market the best can always leave. It’s the weaker candidates who can’t. The business is heading for massive problems.

But she too can say nothing. Her own attempts at challenging the situation – arguing that people matter – have given rise to fairly direct comments that everyone, senior managers included, are expendable.

Well, of course that is true. And I only heard one side of the story. But I’m hearing it time and again – that some businesses are using fear as a weapon to a much greater degree because of the recession. This is management at its very worst. It’s privilege seeking to abuse. It is the example of the bankers transferred out into the wider boardroom. It is a belief that no one is as important as the person in charge.

It explains why the FT has reported that corporate optimism is at its highest level for six years but most people don’t share that view – the FT also noting the British as a whole are only beaten by the French for pessimism right now.

If the recession is to be an excuse to make the privilege gap bigger, the wealth gap bigger and the quality of life poorer then we’re heading for troubled times. And as my conversational partner gloomily concluded, this is the inevitable consequence of Thatcher – because she set out to destroy community, and did.

Richard Murphy Environment, Ethics

re: The Auditors » Blog Archive » EY Settles SEC Charges Re: Bally’s Fraud-Lives To Audit Another Day .

Ernst & Young picks up yet more penalties and Francine McKenna asks an apposite question: how many strikes does a firm get before it’s out?

Quite a lot, she suggests, if you’re on the regulatory body.

Richard Murphy Accounting, Auditing, Ernst & Young, Ethics

Earlier this year I reviewed Google’s accounts for the Sunday Times using 2007 data.

They updated their story using 2008 data (and get it wrong in the process – it pays to ask) this weekend. The Guardian quoted me on it today.

Today I wrote a piece for SkyNews on this. The planned television coverage did not happen – their outside broadcast truck got stuck trying to get to me!. This is their article:

Recently filed accounts show that Google managed to legally avoid paying millions of pounds in corporation tax by channelling its earnings through its Irish subsidiary.

Google has based its European headquarters in Dublin.

Tax expert Richard Murphy has been looking at the figures for Sky News Online:

Google Inc has the motto "don’t be evil". Maybe it should add "and pay no tax outside the USA".

Google is a profitable company. In 2008 it made worldwide sales of $21,795m (£11,774m).

On that it made profits in 2008 of $5,853m (£3,161m). That is a 26.8% profit rate, which puts it in the same league as banks in terms of its ability to generate cash.

The UK tax rate for that year would have been 28.5%. But Google is not a UK company, it is a US company and tax rates there are much higher than here.

The US company tax rate is 35% and added on to that are state taxes.

Combined and if charged at full rate Google would have paid $2,311m in US taxes in 2008.

Actually, it reduced that bill to $1,815m through adjustments. Meanwhile, its total tax bill outside the USA was just $91 million.

Google has always said it believes it can make money ‘without being evil’

That bill outside the USA would not be odd if Google was just a US company, but it is not - 14% of Google’s sales are in the UK according to its accounts - that’s £1,648m.

The vast majority of its sales outside the USA are actually made from Ireland which had 91% of its non-US market in 2007.

Latest accounts for Google in the UK are reported to show that it paid just £141,000 in tax on its profits in the UK in 2008.

That’s much the same as the year before. Which is very, very little indeed on UK sales of £1,648m.

Even stranger still, the accounts for Google in Ireland show it only paid €7.5m (£6.7m) of Irish tax on profits in 2008.

Ireland has a lower tax than the UK, at 12.5%, but this implies the Irish company - which bills almost half of all Google’s worldwide revenues - made a profit of £53m - which is less than a fiftieth of Google’s worldwide profits.

We’re now into the world of guesswork, but the guesswork may be helped by clues given in the ownership of Google’s Irish company.

It is owned by a company in Bermuda, which is a secretive tax haven where no tax need be paid on corporate profits.

How does the profit get there? I suspect that Google Ireland pays Google Bermuda for use of Google’s technology.

That’s fair enough - clearly Google has created something very clever. But two questions remain.

Is that technology so good that charges for it are enough to ensure no significant amounts of tax are paid in the UK or Ireland?

And is it right that Google should seem to avoid paying tax on the vast majority of its profits outside the USA as a result? Those are questions for Google to answer.

What I know is that if Google had made profit in the UK at the same rate that it made profit in the USA about £125m of tax would have been paid by it in 2008 on its UK profits.

There’s a lot we don’t know about Google’s finances and I’ll be candid, I don’t think that can be justified.

We need to make sure every multinational corporation is accountable in every place where it operates so we know where it makes its sales, where it records its profit and where it pays its taxes.

So, if doing no evil means being responsible I wonder if Google is really living up to its own proclaimed standards.

What is curious is this: Google implicitly seems to be acknowledging the power of unitary taxation in its tax reporting. It seems to report profits in proportion to sales in the US. But it seems to avoid doing so elsewhere.

Country-by-country reporting would solve this: the lost tax would be obvious under country-by-country reporting.Isn’t it worth £125 million to HM Treasury to check this out?

Richard Murphy Corporation Tax, Country-by-country, Ethics, Unitary taxation