Avoidance and the intention of Parliament

Posted by Christie Malry on December 10, 2012 at 10:14 pm

Ritchie on tax avoidance:

Tax avoidance is about getting around the law: finding loopholes and abuses never intended by parliament e.g. by routing income through a tax haven.

Parliament has always intended people should have the right to use specific allowances and reliefs in pursuit of social policy. They’re part of tax planning. They’re legitimate, intended for use and have nothing to do with tax avoidance, which is about getting round the law. So of course we can keep those reliefs and tackle tax avoidance because they’re not the same thing.

Parliament intends a few other things:

  • That the UK should comply with European law. That's why Vodafone was settled rather than pursued until the end.
  • That we don't tax a wife as if she were her husband's property, nor do we tax foreign residents on UK-sourced dividend income. That's why neither Sir Philip Green nor Topshop are tax avoiders.
  • That businesses should be able to deduct legitimate costs of doing business in determining their taxable profits. To protect the UK exchequer from companies that inappropriately load up with too much debt (which is deductible for tax purposes) instead of equity (which isn't), Parliament introduced thin capitalisation laws. That's why Boots should be allowed to deduct its interest costs for tax purposes.
  • That multinational businesses should be able to trade here. To protect the UK exchequer from companies that inappropriately fix their intercompany prices at uncommercial levels that might reduce the UK's tax take, Parliament introduced transfer pricing legislation that allows HMRC to restate uncommercial transactions as if they had transacted on an arm's length basis. That's why Starbucks is allowed to buy coffee from other group companies and is allowed to pay its parent for use of the group branding.
  • That the UK should only tax businesses which are resident here. That's why Amazon and Google are allowed to trade in the UK without paying corporation tax on the market value of the transactions they facilitate here, because those companies don't have a permanent establishment in the UK.

The fact is: the main cases which UKuncut and Ritchie have championed all fail miserably under the "what did Parliament intend?" test.  They are all issues that were foreseen by Parliament, as a result of which powers were granted to HMRC to prevent them. To the extent that HMRC didn't prevent them, this still demonstrates Parliament's will being respected rather than flouted. So it's tax compliance, not avoidance.

It Simply Will Not Do for protestors who have no knowledge of tax to pretend that they have insight into the will of Parliament. Because in every case, Parliament understood the risks and legislated to address them.

Daily Mail struggles to differentiate man from woman

Posted by Christie Malry on December 6, 2012 at 11:24 am

Given how much of their website and newspaper is dedicated to women with their baps on display, you'd think the Daily Mail would be able to tell the difference between a man and a woman.

Sir Philip Green's Topshop and Topman business were today valued at a staggering £2 billion after the retail tycoon sold a 25 per cent stake in the fashion brands.

The entrepreneur's Arcadia Group... netted £500 million after agreeing to sell the Topshop stake to American private equity firm Leonard Green & Partners.

Sir Philip... said the cash from the sale will remain in the Arcadia Group.

Er, chaps, the Arcadia Group is owned by Lady Tina Green, not Sir Philip. And the money's staying in the company in any case. So how on earth can you use the headline "Sir Philip Green enjoys £500MILLION payday"?

Gibbering fuckwits.

Also, while I'm not an expert, I would imagine SSE will apply. So expect to see demands from idiotic Ukuncutters demanding that Sir Philip pay his taxes on this windfall. Even though it's not his money.

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UKuncut are still pathetically ill-informed about Sir Philip Green

Posted by Christie Malry on September 10, 2012 at 6:26 am

From a mean-spirited, self-congratulatory post about how two swampies tried to wreck Sir Philip Green's holiday:

In 2005 Philip Green awarded himself £1.2bn, the biggest paycheck in British corporate history. But this dividend payout was channelled through a network of offshore accounts, via tax havens in Jersey and eventually to Green’s wife’s Monaco bank account. The dodge saved Green, and cost the tax payer, close to £300m. This tax arrangement remains in place. Any time it takes his fancy, Green can pay himself huge sums of money without having to pay any tax.

This is a dividend, not a paycheck. Dividends are a distribution to investors of corporate value. As a result, distributions are made out of after-tax retained profits. By contrast, a 'paycheck' is an expense in the accounts; an amount that is deducted from profits before the tax bill is calculated. It's a lie to state that Green paid the dividend "without having to pay any tax", because corporation tax on those profits had already been paid.

UKuncut love to harp on about how it's really a paycheck and therefore it should be treated for tax purposes as if it were a paycheck. That means, in their view, that it should be chargeable as income tax to Sir Philip Green personally, even though it is his wife that is the beneficial owner of the company. What they've overlooked is that, if it were Sir Philip's income, it would be allowable as a deduction in the company's tax return. And that would considerably reduce the corporation tax that the company paid.

Secondly, there's a blatant and revolting sexism that underlies the notion that only Sir Philip should receive money from his corporate endeavours and that his wife's input (in this case, capital) is of no value.

£1.2bn isn't even the biggest corporate dividend in history (for example, Vodafone recently distributed a £2bn special dividend), so they're wrong about that too.

This is amusing, though:

Sir Philip then amazingly started to hurl abuse from the deck of the yacht.

Yeah, how amazing that shouting lies and abuse at someone might get abuse shouted back at you, you know?

And when these intrepid protestors can afford a foreign holiday, the cuts can't be hurting that bad, can they?

Oh, this is fantastic!

Posted by Christie Malry on April 25, 2012 at 7:35 pm

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.

Tax avoidance and tax complexity

Posted by Christie Malry on April 25, 2012 at 7:20 am

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.

Ukuncut: not moral but feral

Posted by Christie Malry on March 15, 2012 at 11:16 pm

In a brief discussion with Twitter blowhard Spitefuel about the Vodafone tax avoidance case, he dismissed the facts of the situation, claiming that it didn't matter because Ukuncut's case was a moral, not a legal  one.

I disagree wholeheartedly. It's simply untrue that you can remain disinterested in the facts of individual taxpayers. In each of the cases raised by Ukuncut, there have been very serious errors in their fact-finding, analysis or judgment. You cannot legitimately paper over these cracks by claiming the moral high ground.

  • in the case of Sir Philip Green, they are claiming that Lady Green, a non UK resident, must be treated as Sir Philip's property. And therefore that her income should be taxed as if it is his income. Conveniently, this would have increased the amount of tax paid by the Greens to HMRC in 2005, a year in which Arcadia, owned by Lady Green but controlled by Sir Philip, paid a very large dividend.
  • in the case of Boots, they are claiming that it's unfair that Boots should get a tax deduction for interest paid on its loans.
  • in the case of Barclays, their analysis was just plain stupid. This "evidence" was so flawed that it provided no meaningful support for their hypothesis that Barclays avoids tax (even though, thanks to their own disclosure, we now know that they have sought to reduce their tax bill).
  • recently, it has been claimed that companies that move jobs to countries with lower employment costs should be fined. So you get idiotic claims like this (from Google+):

  • in the case of Vodafone, it was argued that Vodafone should just accept UK law as written, even if that law appears both to be illegal under European law and leads to double taxation.

Ukuncut also employs some very unorthodox strategies for executing its campaigns. For example, disrupting Saturday shoppers, supergluing themselves to the insides of shop windows, setting up fake hospitals and libraries, trespassing in Fortnum & Mason, and aligning themselves to the ill-fated OccupyLSX movement. Ukuncut likes to take credit for things it didn't do, but denies responsibility for things it fairly clearly did. Most shabby was its ludicrous insistence that the custard pie attack on Rupert Murdoch by a Ukuncut founder was nothing to do with them.

Both the errors of analysis and the methods are justified by its moral purpose. The ends justify both the means and the very campaign itself. But this is self-referential. Over a year after Ukuncut started, it has yet to provide concrete evidence of any of its allegations. At best, it has the hint of wrongdoing. At worst, it has it plain wrong.

So, we have an indifference to facts, an inability to analyse, a refusal to accept criticism, an unwillingness to correct error and a catalogue of disruptive and dangerous antics. This isn't a moral campaign. It's a feral one. And it's time for Ukuncut to get a grip or to get lost.

Why are UKuncut so badly informed about tax?

Posted by Christie Malry on December 18, 2011 at 11:35 pm

Today, there's a sob story from a Student Grant type who went along to protest against Topshop and ended up being arrested.

The political Right in this country like to talk about the horrors of a “something for nothing” culture. Well, Philip Green pays no tax on his company dividends. He couldn’t give a monkeys about public funds, yet his stores are granted protection by the police force – a public service!

Well, dividends in this country are paid from post-tax corporate profits. So any dividend payments anywhere are made from profits that have already had corporation tax deducted.  I put this in bold in case any UKuncutter stumbles by and fails to grasp this most basic of points. Dividends in the UK are double-taxed. So to argue that Green and other bosses "don't give a monkey's about public funds" is crass ignorance of the highest order.

Secondly, Sir Philip didn't actually receive substantial amounts in dividends. His wife did. And she's not British, doesn't live in Britain, doesn't want to live in Britain and - crucially -  doesn't want to die in Britain. Given that the UK is generally only able to tax people who either are British or who live in the UK, this is a pretty big stumbling block to taxing Lady Green on her dividend income.

We don't protest the tax 'avoided' by foreigners who receive dividends from other UK listed companies they own, so why does UKuncut get their panties in a bunch over Topshop? Is it because they're woefully confused about the concepts of ownership and management? Or is it because they believe, neanderthal style, that a man owns his wife and they should pay tax as a married unit?

Companies like Topshop also make full use of waste disposal services, the Royal Mail, ambulances, fire service and road maintenance.

How amazing would it be if the unions and the police federation organised to withdraw their labour from these companies? Binmen should refuse to pick up Vodafone’s garbage! The police should refuse to attend demonstrations or arrest shoplifters at Topshop and friends.

It would be equally amazing if other people who don't pay tax, such as the unemployed, disabled, elderly or very young were also excluded from public services. Wouldn't that be 'amazing' too?

Well, it's a good thing for disadvantaged people that the delivery of state services are - mostly - unrelated to how much you pay into them. And that works for Topshop just as it does for anyone else. Just wtf sort of idiotic argument is this UKuncut blogger trying to make? 

And finally, it's a good excuse to play this song:

Something rotten in Denmark

Posted by Christie Malry on September 16, 2011 at 7:19 am

Lefties everywhere are delighted that a socialist candidate, and a woman no less, has become Denmark's new prime minister. We can always look to Ritchie to take the temperature:

Except, this rather glosses over a rather grubby issue. That, er, her husband - the son of the original ginger rodent himself, Neil Kinnock - is accused of avoiding Denmark's high personal taxes.

Mr Kinnock, a director of the World Economic Forum in Geneva, pays income tax on his £110,000 salary in Switzerland, where the rate is considerably lower than in Denmark. He told the Danish authorities that he spent no more than 33 weekends, from Friday to Monday, in Denmark each year.

Residents are liable for income tax if they spend 180 days in the country, including arrival and departure days.

Mr Kinnock’s status allowed Miss Thorning-Schmidt to deduct about £40,000 in tax against mortgage repayments on their £500,000 Copenhagen town house. However, when she applied to make Mr Kinnock co-owner of the house, she said he was there “every weekend of the year”.

Amid Denmark’s biggest political row in recent years, Miss Thorning-Schmidt has apologised for her “error”.

Mr Kinnock insisted that his original declaration was correct but promptly paid an estimated £29,000 Danish tax bill for 2009, to avoid any “grey areas”.

The Daily Telegraph can disclose that, as far back as 2007, Miss Thorning-Schmidt stated in a biography that Mr Kinnock “comes home every week, either Thursday afternoon or Friday” and returns to work on “Monday morning after the children are sent to school”.

She repeated the comments in subsequent interviews. Mr Kinnock said in July last year that supermarket trips with his youngest daughter “every weekend” were renowned for their regularity.

Søren Aagaard, a Danish tax lawyer, said: “I know the tax authority will be looking closely at these statements.”

Frode Holm, an accountant for the couple, said they denied any wrongdoing.

“There is no problem here,” he said. “Stephen was liable for tax in Switzerland. He did not break the Danish 180-day limit.”

The Daily Telegraph can also disclose that the couple receive rental income from a flat they own in central London. It is thought that Miss Thorning-Schmidt pays Danish tax on her half of the income. But Mr Kinnock is assumed to have paid tax on his half in Britain, where tax was lower. Mr Aagaard said his income from the London flat could also be called into question. From 2004 to 2008, Mr Kinnock worked for the British Council in Russia. Its overseas employees have their salaries reduced by the amount they would have been taxed in Britain, under the assumption that they are based here. But it is thought the Danish tax authority will examine whether Mr Kinnock’s domestic arrangements meant he was in fact liable for tax in Denmark. “If he was taxable and resident in Denmark from 2004 to 2008, he should have paid tax on it here and not in Britain,” Mr Aagaard said.

Mr Holm responded: “Stephen should not have been taxed in Denmark because he was in service with the British Council abroad.” A police spokesman said: “We received a complaint and are considering what action, if any, will be taken.”

The facts of Kinnock Jr's tax affairs are far grubbier than, say, the facts of Sir Philip Green's tax affairs. But, because this involves a bunch of left-wingers, expect no complaint from the left at all. That's the way they roll.

Finally, some honesty from UKUncut

Posted by Christie Malry on February 15, 2011 at 9:29 am

Ah, UKUncut.  The most dishonest, scumbaggy set of shabby protestors the country has ever known.

VodafoneThey set up their ramshackle campaign off the back of Vodafone settling with HMRC over its tax liabilities in Luxembourg.  Without getting too technical, HMRC was keen to avoid the case being referred to the European Court of Appeal, so it was worth its while to settle.  For Vodafone, it removed the overhanging fear of another long, expensive round of litigation.  But UKUncut got it in their heads that, rather than the £2bn originally provided, or the £1bn eventually paid, Vodafone owed £6bn.  And that if only we could get Vodafone to pay £6bn more tax this year, and indeed every year, this would reduce the deficit without having to cut £6bn of services.  UKUncut was born.

TopshopThen they turned their attention to Sir Philip Green, the genius who turned Top Shop around from a hopeless, failing set of retail stores into a thriving UK high street chain. He made a lot of money in the process too, and UKUncut think that he didn't pay his taxes along the way.  But the company has paid its taxes. And then it decided to pay up a giant dividend to its ultimate beneficial shareholder, Sir Philip's wife, who happens to live in another country.  As our tax system isn't generally in the business of taxing foreigners who don't live here, there was no further tax to pay.

BootsSo, despite having a modest amount of public support, UKUncut were still rather scrabbling around looking for some facts to support them.  They tried Boots.  Boots was taken private a few years ago and loaded up with debt.  Debt interest, unlike dividends on ordinary shares, is tax deductible. So Boots has gone from paying rather a lot of tax to, er, not so much.  Queue inevitable outrage from UKUncut. Yet, one company's interest expense is another company's interest income. So there's still just as much profitability (if not more), it's just not all in the same place.

That's three big campaigns and three enormous failures to make the charges stick.  So I'm delighted to read that UKUncut will now be targeting banks.  This is virtually an explicit declaration that they have categorically failed to identify even one company that is avoiding tax in a material way. So they're confessing that their campaign has no factual basis but is instead a cynical greedy ideology-fuelled attempt to steal other people's money to fund their own political objectives.  Like many others, I will be seeking to factcheck the statements they make in case they're tempted to resort to telling lies for political impact.

Time to stop lying about tax cheating in the UK

Posted by Christie Malry on December 24, 2010 at 9:16 am

We have received a number of emails from supporters of the UK UnCut movement asking what can be done to curtail tax cheating in Britain. We are happy to contribute the following ideas to the melting pot.

Britain has a particular problem with tax cheating. London lies at the centre of a global tax haven empire and tax cheating has become the norm at boardroom level and among rich people. It is not helpful that so many politicians are themselves users of tax havens. This has meant that despite years of promises of action, ordinary people in Britain have suffered a generally deteriorating situation as the business community has become more aggressive in its tax avoidance and British banks have become more devious in supporting tax cheats.

Stirring stuff about how UK is stuffed full of tax cheats and how 'ordinary people' want to do something about it.

Let's suppose that Ritchie and UKuncut are right. Wouldn't you expect them to be able to produce some absolutely cast-iron cases of tax cheating that would lead to action being taken by HMRC?

Instead, we have as the two cases they have chosen to lead on:

  • Vodafone, of which both the company itself and HMRC say the allegation of tax dodging is an 'urban myth'; and
  • Topshop, where campaigners seem to have a complete confusion as to whether they're talking about Arcadia's corporate taxes or Sir Philip Green's personal taxes.

These are so pitifully weak, you can hear the sounds of a giant barrel being scraped. Are these really their strongest cases? Just how poor are the rest?  As this excellent piece over at Mark Lee's TaxBuzz blog explains, their entire campaign is based on a catalogue of fallacies and inconsistencies.

Rather than having proved that there's a culture of tax cheating, their campaign highlights their own political bias. It's fine to want to undermine personal property rights, to steal other people's hard-earned money, if that's what you believe. It's pretty far from okay to dress that up as a campaign against tax cheating, when it's so obviously based on a tissue of lies. Their response to criticisms of their facts over Vodafone and Topshop has been to claim that the specifics don't matter, it's a general problem. If that's the case, we need to see some specific cases, otherwise we can legitimately claim that they're a bunch of liars who are using misinformation to fuel their own political prejudices at our expense.

Merry Christmas to all!