It’s almost five months since 11m private documents leaked out of a Panamanian law firm, Mossack Fonseca. This guest post from Howard Bilton, chairman of off-shore advisory specialist The Sovereign Group, looks at the broader state of play for those looking to minimise their tax bills. Read more
This guest post is by Jolyon Maugham QC, a tax lawyer at Devereux Chambers who writes on tax policy and advises the Labour Party.
In Les Amants, Jeanne Moreau is married to a newspaper magnate with little time for his younger wife. One day her car breaks down and she accepts a lift from a younger man…
The 1958 film won for its director the Special Jury Prize in Cannes. To the rest of us it gave a splendid tagline: “This was her moment! And nothing else mattered” and a rather less glorious definition of “hardcore pornography” as a result of its risqué scenes.
Here’s Supreme Court Judge Potter Stewart in Jacobellis v Ohio, a case that arose when the state of Ohio tried (and ultimately failed) to ban Les Amants on the grounds that it was obscene:
“I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description. And perhaps I could never succeed in intelligibly doing so. But I know it when I see it.”
Tax avoidance is a bit like hardcore pornography. To ban it you first have to overcome a tough definitional problem: what is it? Read more
In 1995, the Minnesota state government did an experiment on its citizens. As the deadline for filing the previous year’s taxes approached, almost 50,000 people received a letter from the state. Some of those messages talked about the ethical duty of paying tax, other people were offered help with their tax return. But a small subset of the letters carried an ominous warning: “we will examine your 1994 tax return very closely”.
When that subset, 1,724 people, filed their tax return, there was a marked rise in reported taxes than in the previous year. Most people, when told the government would be checking their finances closely, decided to pay more tax. But one group reported less tax: rich people. Read more
‘A company resides … where its real business is carried on … and the real business is carried on where the central management and control actually abides’.
So said Lord Loreburn in the House of Lords in 1906, on what would become a key case for British law concerning where corporate taxes are due.
At a moment when attention is focused on money passing through Panama on its way to other sunny locations, a quick reminder that common law jurisdictions tend to focus on where decisions about the money are taken when it comes to tax obligations, rather than the location of the cash itself. Read more
While reading up on Indian FDI we stumbled across this little fact from Capital Econ’s Shilan Shah as he attempted to downplay seemingly impressive India-Africa FDI stats…
With our emphasis
Prime Minister Modi stated that “India has emerged as a major investor from the developing world in Africa… surpassing even China”. In a strict sense this is true. According to UNCTAD, India’s total stock of FDI in Africa stood at US$50bn in 2014, compared to China’s stock of US$26bn.
But digging a little deeper, this claim quickly unravels. Nearly 95% of Indian FDI to Africa flows into just one economy – Mauritius. Admittedly, Mauritius does have a significant Indian diaspora and once had a large textiles industry. But in reality, the nature of the FDI inflows has more to do with the favourable tax terms that investors receive through the two countries’ Double Taxation Avoidance Agreement.
Like many of the US presidential candidates who didn’t come to Camp Alphaville earlier this year, Ted Cruz has a radical plan to alter the tax code: slash taxes on income, make it easier to save in new tax-free accounts, and make up much of the difference by introducing a sizable value-added tax.
Our first thought was that this ought to have a big impact on the US current account balance. Others may care more about the impact on the federal budget balance or aggregate incentives to work and invest, but we just can’t help bringing everything back to the balance of payments. And to us, Cruz’s plan sounds a lot like a “fiscal devaluation”. In fact, it could offset the impact of the strengthening dollar. Read more
One small detail in Shell’s £47bn takeover of BG Group to consider: Stamp Duty. HM Treasury can look forward to a £235m windfall once the deal concludes.
Corporate buyers used to avoid the 0.5 per cent tax by using schemes of arrangement, where shares in the target company would be cancelled, followed by the issue of new shares by the bidder. However a change to company law last month closed the loophole.
The measure was announced in December’s Autumn Statement, but hasn’t attracted much attention since, possibly because it was only forecast to bring in about £65m per year. Read more
Over on Lex this week we’ve been pondering the finer points of what shareholders get out of tax inversions.
So… from the text of AbbVie’s planned £32bn merger with Shire, announced on Friday: Read more
The attempt by US drug company Pfizer to buy AstraZeneca, the crown jewel of Britain’s pharmaceutical industry, has prompted entirely predictable reactions.
There is outraged huffing and puffing from the left and from vested interests about the loss of the UK science base. Even the FT has joined in with the pseudo-dirigism more usual in the Guardian or Le Monde, calling for an independent assessment of takeovers which might damage UK science… Read more
And so to the Irish government’s international tax strategy, fresh out on Tuesday and making Ireland “part of the solution to this global tax challenge, not part of the problem” according to Michael Noonan.
Ireland has incidentally guided its 12.5 per cent corporation tax rate through its bailout. It even outlived Sarkozy’s presidency. Read more
For all the gnashing and wailing about the dangers of quantitative easing from some of the super rich, the fact remains that owners of capital (ie the rich) have done very well from QE.
Now, as we’ve noted before, plenty of serious people are paying attention to the inequality question, and its not clear what monetary policy can do about inequality even if it should do something about it. But news that US housing is turning frothy again, with San Francisco prices up 25 per cent over the last year, has Albert Edwards of Societe Generale reaching for the exclamation marks. Read more
Financial maze du jour — can you get tens of billions of pounds in cash through this corporate structure to a big, tax-free investor payout? Start from the bottom, find your way to the top. Read more
What to make of the 7 per cent levy which Hungary is imposing on bank holdings of local government debt?
This is debt that is being assumed by the central government. So, it was curious to see the government insist on Tuesday that its $219m tax collection isn’t a hidden write-down. (We should in any case preface this post by noting that Hungarian bonds have been bullet-proof lately.) Read more
There are 13 ‘shoulds’ in the Lough Erne Declaration which has come out of the G8 summit:
1. Tax authorities across the world should automatically share information to fight the scourge of tax evasion.
2. Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where.
3. Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.
As part of its worthy attempt to herd the tax authorities of the world towards some form of global coordination on the taxation of multinational companies, the OECD offers us some examples of tax planning structures currently in use.
Skip to page 73 of this document. Can you guess who might be using an “E-commerce structure using a two-tiered structure and transfer of intangibles under a cost-contribution arrangement“? Read more
International transfer pricing might not win any awards for sexy topic of the year, but it is what’s at the heart of the debate around low corporate tax payments by the likes of Starbucks, Google, and Amazon.
To explain why, consider Mr Potato Head… Read more
Social media strategy is more of an art than a science, as HM Revenue and Customs was busy proving Monday morning as it tried to encourage people to file their taxes online by the end of next month… Read more
Corporations appearing to not pay their fair share of tax in the UK is a running theme. Starbucks, Google, Amazon, and now water companies, are all having their turn in the limelight. Let’s have a brief tour around each.
Firstly, sorry to be the bearer of bad news — but it turns out that you aren’t paying enough for your extra hot single-shot caramel skinny latte (as per a Starbucks press release, emphasis ours): Read more
And so to HMRC to examine the UK’s “tax gap” — the difference between tax actually collected and the tax that could theoretically be collected. Click to read.
The ‘gap’ in Britain is put at £32bn. Read more
We’re scratching our heads.
The Romneys donated $4,020,772 to charity in 2011, amounting to nearly 30% of their income. Read more
“I’m really sick of this government giving away our taxes to those corrupt Greeks,” said the owner of a pet shop in Amsterdam who asked not to be identified by name because he does not declare all his income to the authorities.
How on Earth did we miss this last week, via Reuters? (H/T Pawelmorski) Read more
Just in case you missed it earlier — we thought it worth posting the full letter from Bob Diamond, Barclays chief executive, to Andrew Tyrie MP, Treasury Committee chairman, regarding HMT’s blocking of two tax schemes (one on buybacks of debt). This involved a rare use of retroactive legislation, if you recall.
Anyway, the letter (click image for full doc): Read more
The investment that Hewlett-Packard made in an entity called Foppingadreef back in 1996, thinking that it would give rise to significant tax benefits over the next seven years, was not typical of so-called “foreign tax credit generators”.
Barclays’ structured trust advantaged repackaged securities (Stars) are perhaps the most well-known FTC generators and they have allowed multiple US banks to reduce their tax liabilities — though the Internal Revenue Service is challenging this in the courts. Read more
In our last post, we presented the genesis of a transaction set up by AIG Financial Products in 1996 that stood to reap significant tax benefits by generating an abundance of foreign tax credits (FTCs) as well as a deduction arising from a capital loss.
The Internal Revenue Service fought back when some of the benefits were claimed, and on May 14, 2012 they won in the US Tax Court, leading to the benefits being disallowed. This case, along with another won by the IRS in September last year, allows a rare glimpse into the world of international tax arbitrage. Read more
On May 14th, 2012, the US government won a case against Hewlett-Packard. The company was trying to reduce its tax bill by claiming certain foreign tax credits (FTCs) and a deduction on a capital loss that arose from a transaction it had entered into in 1996 with a Dutch entity called Foppingadreef. Both were claims disallowed in the ruling. The case may go to appeal.
The type of transaction can generally be classified as a so-called “FTC Generator” as one of the main benefits, if not the main benefit, concerns positive tax attributes created by it. Read more
Hewlett-Packard recently lost a big tax case with the US IRS. An intricate structure known as an FTC generator was at the heart of this dispute – and it’s left us wondering what the consequences might be for all those institutions so busy in this space over the past decade or two.
Hopefully, this four-part series will walk you through the basics, giving a glimpse into the world of international tax arbitrage…
While in some countries avoiding tax is a national pastime, in America the government offers all manner of mechanisms to reduce one’s bill.
From deductions on mortgage payments, to the low rates on long-term capital gains that private equity moguls benefit from, to generous accelerated depreciation methods on a wide range of property. Read more
Over the weekend, we were treated to (even more) pre-announcements about what’s going to be in this year’s budget in the UK. FT Alphaville’s interest was piqued by Chancellor George Osborne’s proclamations that there would be an end to stamp duty land tax avoidance schemes. The levy is currently up to 5 per cent on the purchase of a residential property.
To begin with, how are people avoiding stamp duty? What sort of structuring is involved? Read more
FT Alphaville has been very curious about exactly what went on in two tax schemes that the UK government legislated against this week. While Barclays wasn’t the only company that engaged in the types of transaction affected, it’s become clear that at least one transaction by the bank, involving buying back its own debt, prompted the government to act.
One of the things that’s especially dramatic about the action, is that it’s retroactive. Not that it catches all the instances this was done though — it only looks back as far as December 1st, 2011, but that is evidently far enough back to catch the transaction that Her Majesty’s Revenue & Customs was especially concerned about. Read more
Fifteen banks are signatories to the UK’s Code of Practice on Taxation.
BANK OF AMERICA/MERRILL Read more