Via Accountancy Age:

Labour MP John Mann, a member of the Commons Treasury select committee, said Goldman Sachs should not defer tax payments when it was able to pay now.

"It's morally and ethically wrong. These are people who are at the heart of the problem in the financial world who've paid extraordinary bonuses to their partners and aren't prepared to pay a fair amount of tax. It's pure unadulterated greed."

Oh, FFS! With stupidity this unrestrained, it's a wonder John Mann can tie his shoelaces, let alone get elected as an MP and serve on the Treasury Committee.

A company's tax bill is determined by tax law. And its reported profits are determined by accounting standards. Big companies report their consolidated profits for all the countries in which they operate.

Now these two sets of rules are different. So it's hardly surprising that sometimes they give different results. While some of the differences are about measurement, most of them are about timing. And usually this means the financial reporting numbers are faster to recognise profit than the tax man. The reason for that is to make it more likely that there's cash to pay the tax bill when it arises.

Because the main difference is one of timing, accounting standards force companies to account for these timing differences in their financial statements. And that's where deferred tax comes in. But deferred tax is a pure accounting concept. It's not something that otherwise means anything.

So John Mann is being a prime fuckwit when he talks about Goldman Sachs deferring their tax bill. The amounts that are reported as deferred tax aren't due. They represent profits in the financial statements that will give rise to a tax bill at some point in the future but don't give rise to one now.

Goldman Sachs might well be able to pay more now. But there is simply no "more" tax bill to pay. Not until the profits reported this year become taxable in future years.

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Filed under: Taxation with tags accountancy age, corporation tax, deferred tax, goldman sachs, idiots, john mann
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Ritchie is struggling a bit with his logic here:

Capital and wealth is now largely untaxed in this country.

Our major corporations hide their affairs from view in tax havens,

Erm, the main reason capital and wealth is largely untaxed in this country might be because capital and wealth isn't in this country? As the European Union keeps reminding us, we can only tax what's actually here.

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Filed under: Other blogs, Taxation with tags controlled foreign companies, european union, richard murphy, tax avoidance, tax havens
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Tax Journal reports that the BBC has had to apologise to Sir Philip Green for insinuating that he's a dirty tax avoider:

Today presenter Evan Davis said: ‘We need to clear up something from earlier this week ... We said that Sir Philip Green had cut his tax bill in the UK by hundreds of millions of pounds by transferring ownership of Arcadia ... to his wife. We’re happy to make it clear that Arcadia was bought by Lady Green in 2002, and because she has not lived in the UK for 15 years no tax was due in this country on any dividends that were paid to her. We apologise for suggesting otherwise.’

Now let's hope that Dishface also apologises for his crass contribution to the tax avoidance debate.

Then let's also hope that the BBC corrects Ritchie live on air every time he describes tax-compliant behaviour as tax avoidance.

Filed under: Taxation with tags bbc, david cameron, evan davis, idiots, richard murphy, sir philip green, tax avoidance, tax journal
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David Cameron saying that he will fight against aggressive tax avoidance. What does he mean? When pressed during a Radio 4 interview, he gave the example of setting up a company, he failed to deny that he considers Sir Philip Green to be morally repugnant, and he has refused to row back on his government's extraordinary rhetoric on charitable donations, which has seen rich philanthropists almost universally panned as tax avoiders.

What unites all these examples? In each case, the law is being used in more or less the way it was intended when it was passed. Companies have been with us for hundreds of years; Sir Philip made a gift to his spouse, as specifically permitted by the law; and income tax legislation provides relief for charitable donations. So it's really quite alarming to hear the Prime Minister describing any of these three cases as aggressive tax avoidance.

It wasn't always like this. Historically, we distinguished only between tax compliant behaviour and tax evasion. Tax evasion is where a taxpayer breaks the law by, for example, lying about their income or failing to disclose some of it to the authorities. Tax evasion is illegal. Everything else, by contrast, is legal. Unfortunately, some clever accountants and lawyers began to devise schemes to use the tax law in ways that hadn't been envisaged when the law was passed by Parliament. For example, some companies tried to pay bonuses to staff in gold bullion, diamonds or fine wines, which could readily be turned into cash, in order to avoid having to pay national insurance on them. While technically within the letter of the law at the time, they were clearly against its spirit, so government moved retrospectively to close these loopholes. The concept of 'tax avoidance' was born.

Dennis Healey famously said that the difference between tax avoidance and tax evasion was "the thickness of a prison wall". But it was accepted that Parliament, at times, intends to incentivise some taxpayers to behave in a certain way by offering a reduction in tax as a reward. While tax avoidance, as defined, covered a wide spectrum from ISAs and pension contributions at one end to artificial loss creation schemes at the other, the distinction between avoidance and evasion was well enough accepted. Taxpayers that obeyed the law and honoured the intentions of Parliament had nothing to fear.

At least until now. The recent government rhetoric on the sort of avoidance that formerly was uncontroversial is very unwelcome. What now is an honest taxpayer to do, when even using a tax deduction in the way it was intended is an insufficient defence against allegations of aggressive tax avoidance? Worst of all, this comes at a time when the tax legislation has never been longer. Despite repeated commitment to simplify the tax system, successive governments have failed to deliver.

This begs the question: why do we need a complicated tax system, when politicians seem hell-bent on denying taxpayers the precisely targeted incentives that the complexity is there to provide? If Cameron and Osborne genuinely believe that all tax deductions are aggressive avoidance, they could eliminate all avoidance overnight by replacing our monstrous tax system with a simple flat tax instead. But by burdening taxpayers with an appallingly complex tax system which it won't let them use, we truly have the worst of both worlds. Cameron must either row back on the rhetoric or deliver proper, meaningful simplification to our tax system.

Filed under: Politics, Taxation with tags charity, david cameron, dennis healey, flat tax, george osborne, parliament, sir philip green, tax avoidance, tax evasion, tax simplification, today programme
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Ritchie lays into deferred tax, which is included within the analysis of 'tax paid' within the CBI report:

What I will argue about is that they use the tax charge in the accounts as the measure of the tax paid by a company. This is just financially illiterate! Deferred tax is just an accounting entry and has literally nothing to do with tax that is being paid now. 

Now, if one of the main purposes of tax avoidance activity is to defer the time when tax is due by, for example, hiding profits in tax havens or seeking double allowances for tax or by postponing the recognition of income for tax in multitudinous ways (and I can assure you that this deferral is one of the main motives of tax avoidance because this deferral very often triggers extra payments under executive bonus schemes – linking this issue and excessive pay, inextricably and so explaining why multinational corporation directors are so dedicated to tax abuse) then to include the deferred tax charge in a company’s accounts (itself one of, if not the most subjective number in any set of accounts) in the tax charge is to ignore the fact that this accounting is precisely designed to disguise the fact from those lacking curiosity (like Oxford tax academics) that this tax avoidance is going on by suggesting a tax bill exists when there is none, and may not be for some considerable time to come, if ever.

What this means is that given that the tax gap is entirely about tax not being paid  then  basing an analysis of effective tax rates on a measure that deliberately and knowingly ignores the fact that tax is not being paid by including an accounting entry that disguises that fact as if it were tax paid when it is no such thing is to candidly, blatantly and knowingly distort the resulting data presented on effective tax rates and the tax gap. It can’t be anything else.

This is basically a load of Ritchiebollocks. A key part of the argument made by tax campaigners such as Ritchie is that the profit within the financial statements should fundamentally be taxable. And that's why you see them leafing through annual reports to find companies with high accounting profits but low tax charges. Then they go into their high street stores and glue their noses to the window.

Now, tax systems don't work directly off the accounting profit. They work on a national - not consolidated - basis. And then, while they may use the accounting profit as a starting point, they frequently amend it to make the system fairer for the companies that pay corporation tax. So, tax systems usually don't allow depreciation to be deducted in tax computations. Instead, they apply a different approach, which recognises that a company that has spent many millions of pounds on new equipment to generate profits in the future probably wants a hefty tax deduction today (instead of the accounting approach which would spread the cost over the useful economic life of the acquired assets). Similarly, companies that invest in R&D frequently get special incentives from government to do so, because it is costly upfront but may generate growth in the future.

Sometimes the tax system treats a transaction the same way as the financial reporting system. Sometimes it recognises costs or income earlier and sometimes it recognises costs or income later. Where the timing is different, financial reporting requires a deferred tax entry to be recorded, to reflect that the tax treatment is the same, just in a different period. When tax catches up with financial reporting, or vice versa, the deferred tax entry is reversed. The basic idea is that it makes the overall tax charge in the accounts smoother.

But you'll see from all this that the broad objective is to match accounting entries against their ultimate tax treatment. So it's ludicrous to suggest that deferred tax is "just an accounting entry" that has no relevance to the overall tax rate being borne by the company. And it's even more ludicrous to compare the current tax charge to the current year reported profits without considering what portion of the current year reported profits will give rise to tax liabilities in the future. Deferred tax helps you understand that. Ritchie, it appears, would prefer it if you didn't understand it.

Filed under: Taxation with tags corporation tax, deferred tax, idiots, richard murphy
65652 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F04%2Fritchie-and-deferred-tax%2FRitchie+and+deferred+tax2012-04-23+22%3A50%3A07Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6565

So there's this idea floating around out there to give companies that pay their fair share of tax in the UK a FairTax emblem:

Company FairTax emblem

Similar to the 'FairTrade' emblem, companies that pay their fair due in tax for doing business in the UK would be awarded the emblem. Many smaller UK companies would get this by default when they don't do any (or a very small percentage) of overseas business.

The goal is to stop global multi national corporations doing business in the UK and then funnelling their business through foreign subsidary companies therefore paying minimal tax in the UK. Examples include Apple, Amazon etc. The Amazon example is of only paying £124 million in tax on £7 billion of revenue from the UK.

If you want to do business in the UK you must support the UK too.

Now there's a rather big problem with this. And that's that they don't define who is going to be responsible for issuing the FairTax emblem. If it's going to be the usual bunch of rabid crusties and Ritchies, then it's fair to say that everyone will soundly ignore it. Just as I suspect Amazon can barely feel the impact of recent criticism of its tax structure. Lots of people might mutter about it, but they'll all happily shop there. You can judge how strongly Ritchie feels about Amazon by the fact that his book is still available for sale there.

A crusty-led scheme would have to be mandatory. But they have grander plans for FairTax. They would like all multinational companies to be required to have it (eg see Mike Saunt's comment timestamped Apr 23, 2012 5:32 pm). Now, in order for this mandatory version to work, it would need to have a government department or quango behind it to distinguish between those who pay the fair amount of tax and those that do not.

And there's the problem. We already have a government department for distinguishing between those who pay the fair amount of tax and those that do not. It's called HMRC. And HMRC has a very detailed and complex set of rules that it must follow for determining whether a company's tax payment is fair. Those rules are laid down by Parliament and frequently need considerable professional judgement on how they should be applied, both by the taxpayer and by HMRC. Some of the more difficult disputes end up in court to be resolved.

You just can't wave away all this complexity by renaming it as "FairTax". No matter how many signatures your petition gets (32 at the time of writing).

Filed under: Taxation with tags 38 degrees, amazon, complexity, fairtax, hmrc, idiots, mike saunt, parliament, richard murphy
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On AccountingWeb, I notice the following comment:

I have always thought it unfair that £100 of child benefit is worth £100 to a non-taxpayer but £167 to a 40% tax payer

That's a really strange way of looking at it.

Sure, in order for a 40% tax payer to take home £100, he/she needs to earn £167 whereas someone who doesn't pay tax would need to earn just £100. But each person only has £100 in their pocket at the end of the transaction, because the richer person would have to pay £67 back to HMRC while the poorer person pays nothing. And the 40% tax payer can't buy £167 worth of goods with their child benefit. Like the non-taxpayer, they can only buy £100 of goods.

So the idea that it's worth "more" to the richer person is, really, pretty idiotic.

Filed under: Other blogs, Taxation with tags accountingweb, child benefit, higher rate, idiots, income tax
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Ritchie defends his decision to besmirch the reputation of a dead man, David Cameron's late father:

[David Cameron is] prime minister precisely because of inherited wealth and position and precisely because his father’s tax haven activities paid for Cameron to go to Eton, to be in the Bullingdon and to have the connections that sent him on the way to Number 10.

If Cameron did not seek to perpetuate inherited privilege and wealth we could ignore his father’s way of earning a living, but he does argue that the son is the heir of his father – in which case his father’s means of buying him his privilege are entirely fair game for political debate and those who say otherwise ignore the reality of the Tory position.

Ritchie has been more than ordinarily erratic recently. You'll remember last year, he fell out with the lovely Frances Coppola, accusing her of being an apologist for the banks, even though most of her blog material is in fact highly critical of banks. And yesterday he launched an extraordinary attack on Mark Lee. I've met Mark and, frankly, Ritchie's attacks on him are completely unfair. His attack on Cameron's father is just another example of a rather depressing trend - to criticise other people when he finds himself unable to respond to their arguments.

Now, when it comes to personal attacks, Ritchie has such a thin skin you can practically see all his internal organs. Yet he's apparently quite happy to dish it out, while continuing to bleat that people are using ad hominem arguments against him! 

In the case of Cameron's father, he's failing to look at the facts of the case. As is apparent from the original article, and would be also apparent to anyone with even the tiniest knowledge of the UK tax system, you can't just shovel money offshore into a tax haven and profit from it. You need to get that money back out again. The Guardian was at pains to say that when the money is repatriated tax is due, and they have no evidence that tax wasn't paid in the proper way. It's totally irresponsible - and more than just a bit naive - to insinuate that Cameron's father was somehow able to pay little David's Eton bills and for his Bullingdon club damage by writing a cheque from his tax haven account with no further tax consequences. Unless, of course, he has evidence that this was going on.

It is possible that, by exploiting the secrecy of a tax haven to mask a complex series of transactions, tax could be illegally evaded. But Ritchie has no evidence that that is what has happened. So his innunendo is a thoroughly despicable and undeserved attack on a dead man. He should be ashamed of himself. But, on past form, he won't be.

Filed under: Other blogs, Taxation with tags bullingdon club, david cameron, eton, frances coppola, idiots, mark lee, richard murphy, tax avoidance, tax havens, uk
65447 Comments »http%3A%2F%2Fwww.fcablog.org.uk%2F2012%2F04%2Fritchie-is-still-getting-it-horribly-wrong-about-cameron-srs-tax-affairs%2FRitchie+is+still+getting+it+horribly+wrong+about+Cameron+Sr%27s+tax+affairs2012-04-22+19%3A56%3A25Christie+Malryhttp%3A%2F%2Fwww.fcablog.org.uk%2F%3Fp%3D6544

Tax avoidance by wealthy high-tech firms is on the rise, a new report from The Greenlining Institute finds. Cash held overseas by tech firms rose 21 percent from 2010 to 2011. Apple’s 2011 tax rate of 9.8 percent was lower than that of American households making an average of $42,500 per year.

O rly?

This is a recent report from the Greenlining Institute, and it suggests that lots of naughty American tech companies are paying tax at a much lower rate than they should be. And they do this by using - you guessed it! - tax avoidance. The report says that the main technique is to shift profits overseas.

Needless to say, the report is a complete load of horseshit from start to finish.

First up, most of these big profitable tech companies have gotten that way by being global. So they're already in foreign countries. They don't need to shift profits there, and even where they do 'shift profits' overseas, it's largely achieved by actually moving production there. That might be sad for American workers who lose their jobs, but there's nothing artificial about it.

But that alone cannot account for tax rates such as Amazon's 3.5% on reported profits. So what's going on?

The answer is simple. And the morons at the Greenlining Institute totally fail to spot it. Tech companies have long used stock options to pay their employees. They do this because, to begin with, they tend to have lots of promise but not a great deal of revenues. So they give employees a tiny share in the future earnings potential of their venture. If it pays off, it pays off big. 

Companies are required to deduct the fair value of those options in the profit and loss account, spread over the period of vesting. But that's not the way the IRS taxes them. The IRS does not permit the accounting entry to be deducted for tax purposes. Instead, it gives a deduction when the employee exercises the option. At that point, the true cost of the option is known (for more, see this explanation at Wikipedia).

The "excess tax benefits from stock-based compensation" are allowed as an offset to the company's US tax bill. So it means that Amazon can reduce its current tax charge by $62 million.

Tech companies have traditionally used stock options a lot more than other companies, so you'd expect this effect to be a lot bigger than in, say, manufacturing companies. And you really would expect tax researchers, even those from a tinpot think tank, to know this sort of stuff, wouldn't you?

Filed under: Taxation with tags amazon, apple, greenlining institute, idiots, income tax, irs, pwned, stock compensation, us
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Ooh, have we caught the Cameron family doing something naughty?

David Cameron's father ran a network of offshore investment funds to help build the family fortune that paid for the prime minister's inheritance, the Guardian can reveal.

Though entirely legal, the funds were set up in tax havens such as Panama City and Geneva, and explicitly boasted of their ability to remain outside UK tax jurisdiction.

Er, no (emphasis added):

The structure employed by Cameron senior is now commonplace among modern hedge funds, which argue that offshore status can help attract international investors. UK residents would ordinarily have to pay tax on any profits they repatriated, and there is nothing to suggest the Camerons did not.

So they've put a bunch of money into a place where it's not subject to UK tax. They'll be subject to UK tax whenever they bring any money back to the UK and there's no evidence or allegation that they haven't complied with their tax obligations at all.

This isn't tax avoidance, because not even the mighty brains at The Guardian seem to be able to articulate precisely what taxes have been avoided. So there's simply no story here at all (of course that doesn't stop Ritchie having a strop about it).

Filed under: Taxation with tags david cameron, guardian, idiots, income tax, panama, richard murphy, switzerland, uk
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