Archive for the ‘Tax Justice’ Category

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O Canada!

January 8, 2016

Now if you ask me, this is how you do a consultation!  The Canadian authorities start now, with an accessible invitation to citizens to come on board with their thoughts as to what should be in their next Budget.  (Hat tip to Jill Rutter at the Institute for Government for the original mention on twitter:

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You might also like to look at her old blog post commenting on the adequacy of our own dear Treasury’s “budget suggestions portal”)

Because, actually, who has a right to be involved in the conversation about tax? If you are a regular reader of this blog you can probably guess my answer: we have.  We, the citizens, the tax muggles, the taxpayers, have a right to take part in the conversation about tax; it’s not a topic that should only be addressed by “experts”.

What has wound me up about the topic today?  This consultation about the tax deductibility of corporate interest expense.  It closes on 14th January: I was going to make it my first consultation response of the year, and then I thought I might not bother, and then I skimmed the first few paragraphs, and then I got

r e a l l y   a n g r y…

Here’s the rubric on the consultation page:

This consultation will look at:

the key aspects of the OECD recommendations regarding best practices in the design of rules to prevent base erosion through the use of interest expense
how specific issues could be addressed in a UK domestic policy context.
This consultation is open until 14 January and the government will consider responses in the development of a future business tax roadmap.

OK, so we know the government is developing this “business tax roadmap” (because business needs “certainty” about tax, whereas the rest of us will be happy with the usual government mess of making it up as they go along?)  And I’d heard of BEPS – the base erosion and profit shifting project – which is one of the things that I vaguely meant to get on top of one day, but essentially is the international project (in the Organisation of Economic Co-operation and Development – OECD) to stop multinationals from pretending they have to pay all their income from selling you (say) coffee in (say) Sheffield to some corporate knowledge bank in (as it might be) The Netherlands, because no-one else knows how to make coffee…

Now I thought David Cameron was all in favour of BEPS – that the UK was setting the agenda and taking the lead...

Which is why I’m a bit surprised that

we are publishing this document now to seek views from all stakeholders on how best to respond to the OECD proposals. We are interested in the views of all stakeholders on how to address BEPS issues involving interest expense in an effective and proportionate manner. The results from this consultation will be considered in the development of a future business tax roadmap. [David Gauke’s introduction to the consultation document]

“Effective” and “proportionate” are, I imagine, code words for “impotent” and “ineffective”?

To me this looks like an attempt to take the principles that tax justice campaigners have worked for – ending the erosion of the tax base, ending profit shifting to tax havens, introducing country by country reporting – and letting the poachers work out the rules of engagement that will bind the gamekeepers.

Look at the slide set from the “stakeholder event” held on 14th December last year.

(Incidentally, one of the objectives of the day was

  • To encourage and facilitate constructive written responses to the public consultation

because god forbid we should get unauthorised muggles giving their views!)

You will see from the first page of notes (after slide 16) that there is a description of the “stakeholders” attending the meeting.

There were 73 representatives from a wide range of business sectors including manufacturing, retail, services, oil and gas, utilities, telecoms, publishing, infrastructure, real estate, banking, insurance, and fund management, as well as from accountancy and legal firms, regulators, trade associations, civil society organisations and academia.

Now: who in that list represents you?  What stakeholder was protecting the interest of the ordinary taxpaying citizen?

Perhaps it would be easier to look at the list of the actual organisations represented:

Association of British Insurers (ABI)

Action Aid

Association for Financial Markets in Europe (AFME)

American International Group (AIG)

Alternative Investment Management Association (AIMA)

Allen & Overy

Alvarez & Marsal

Amazon

Anglican Water Group

Anglo American

Asos

Association of Investment Companies (AIC)

Association of Real Estate Funds (AREF)

BAE Systems

Baker & Mckenzie

Balfour Beatty

Barclays

British Bankers’ Association (BBA)

BDO

Base Erosion and Profit Shifting (BEPS) Monitoring Group

BG Group

BHP Biliton

BP

British Property Federation (BPF)

British Land Corporation

BT

Confederation of British Industry (CBI)

Chartered Institute of Taxation (CIOT)

Deloitte

Diageo

Disney

Duff and Phelps

Evans Property Group

EY

Ford

Freshfields Bruckhaus Deringer

G4S

General Electric (GE)

Grant Thornton

GlaxoSmithKline (GSK)

Heathrow

HSBC

Institute of Chartered Accountants of Scotland (ICAS)

Informa

InterContinental Hotels Group (IHG)

Investment Association

Investment Property Forum

Johnson Matthey

KPMG

Liberty Global

London School of Economics and Political Science (LSE)

Microsoft

National Grid

Nomura

Norton Rose Fulbright

Ofwat

Oxfam

Pearson

Pinsent Masons

Prudential

PwC

Rolls Royce

RSM

Santander

Severn Trent

Shell

Slaughter & May

Tesco

Unilever

United Utilities

Vodafone

XL

(incidentally I make that 72 and not 73)

Now, if I had been David Gauke, I would have had a few select financial journalists in for a chat and made it clear that we were looking to be, and to stay, at the forefront of the BEPS project and tried to get them excited about the idea of a proper consultation, with taxpaying citizens and not just the Usual Suspects.  And then I would have emulated the Canadians and organised a google hangout and a webpage and a hashtag and a Facebook page and an appearance on Jeremy Vine and…

I’d have asked us.

It would have taken some explaining what the question was, but I don’t for a moment believe that the taxpaying public is incapable of understanding the question nor uninterested in the answer.

Who’s for a google hangout to thrash out a Muggles’ Charter?  The government wants to “encourage and facilitate constructive written responses” so let’s answer the call.

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Tax credits, grandfathering, and Budget speeches

October 19, 2015

I have very little knowledge of the tax credit system but, like many other people, I was disturbed by the suggestion that the government was taking money from the working poor and claiming it would be replaced by the increase in the national minimum wage.  For one thing, the NMW is only £6.70 an hour, applies at even lower rates to apprentices and under 20s, doesn’t apply at all to the self employed, and is poorly enforced and… creatively interpreted, shall I say? – by rapacious employers.

The rebranding of the NMW as a National Living Wage (from April next year) seems to see the age limit rise again to 25 and the amount rise to £7.20 an hour, with the promise it will reach £9 an hour by 2020.  But how can a pay rise in 2020 compensate for a tax credit cut in 2015?

— Wendy Bradley (@wendybradley) October 8, 2015

However as the row about tax credits has been in the news I have been trying to clarify my own thinking about the subject.  Because I think that tax credits should – ultimately – wither on the vine, because I think that they can be a form of corporate welfare, allowing bad employers to pay poverty wages and let the taxpayer pick up the bill.  So I believe that increasing the minimum wage and decreasing tax credits is the right thing to do, and have said so before.

I was all set, in fact, to write a blog entry suggesting that grandfathering might be the “tweak” that politicians were looking for to get themselves out of the political row.  “Grandfathering” being the term used in tax and elsewhere for changing the law but allowing the old law to continue to apply in certain circumstances – for example, reducing the maximum amount you can put into a pension, but allowing people who have already put in more than that to “grandfather” the amount already there.

So – I thought, innocently – if you changed amount of tax credit but grandfathered those already in receipt of tax credits…

Say someone had 100 of wages and 50 of tax credits, you’d grandfather that total figure, so if tax credits went down to 25 you would pay a new claimant 25 but grandfather those already on 50.  But if their wages went up to 125 you would reduce the tax credits to 25, so they would still be on the grandfathered amount – they wouldn’t be a cash loser – but the state’s contribution to the amount would reduce.  And you would hope, of course, that by the end of the parliament they would be getting wages of 200+ and tax credits of zero so the benefits of the supposed economic improvements washed out the need for tax credits and people actually were better off.

Except…

Well, except when I started looking at what George Osborne had actually said in the Budget speech, I found he said this:

This approach means no family sees a cash loss.

Either he was being disingenuous in the Budget speech (it’s written in that dreadful, flat, verb-free politician-speak, so it’s entirely possible that the clear statement I picked out refers only to one, or some, or a few of the multiple changes he’s listing), or he’s changed his mind, or he’s lied to Parliament.

I’m sure there’s a simple explanation, but I’d like to hear someone ask him the question, please.

 

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Tax havens

October 16, 2015

I read this article in the Observer last week and immediately thought “yes!  This!” and tweeted the link:

Essentially, if I understand him correctly, Zucman argues that we should measure the profits of international companies in the same way that the US measures the profits of American companies trading in more than one of its states, by allocating profits in proportion to the customers of each state rather than by the location of the seller.

But, just as I thought “yes!  This!” to Piketty when I started reading Capital this summer, I nevertheless don’t think Piketty’s taxes on wealth are any more likely than Zucman’s taxes on companies, because neither of them addresses how tax law is made.

It may, indeed, be obvious to you and I that taxing the rich on what we used to call their unearned income (and isn’t THAT a term we ought to bring back into use?) and taxing companies on the proportion of their profits commensurate with the customer base that is located in the country doing the taxing, rather than in the tax haven where they have planted their brass plate, are reasonable and equitable.  But, frankly, you and I don’t make tax law.

As you may remember, I have been groping towards this question in this blog for some time, characterising a difference between tax wizards and tax muggles.  I’m now groping towards putting some academic language around this thinking, of which more, I hope, later.

But let’s look at a practical example.

The other recurring theme here is the VATMOSS VATMESS.  You’d almost think, wouldn’t you, that I agreed with the principle that VAT ought to be charged according to the location of the customer and not the seller, because is that not the very essence of the scheme Zucman proposes for international company taxation?

Well, yes: in the same way as the old joke about the country deciding to switch from driving on the left to driving on the right, and deciding to phase it in by making the switch only applicable to lorry drivers.

In other words, we have a principle that might be a better way of organising international taxation being applied piecemeal to a tiny corner of international trade.  A tiny corner least able to understand, apply and implement the change; and a tiny corner least able to contribute to the making of the regulations which burden it, because it consists of stakeholders not given an equitable voice in the stakeholder community.

I’m thinking aloud here, or, at least, groping towards an argument.  Feel free to join in, cheerlead or otherwise contribute in the comments.

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Dispatches from the Ministry of Magic

August 20, 2015

On August 17th Richard Murphy and Jolyon Maugham published this blog entry headed “Labour needs to take tax seriously”.  (Richard is the accountant behind Tax Research UK and Jolyon is a tax QC).  And of course Labour does: all parties do.  But the passage which interested me was this:

We know that the Labour Party in opposition lacks the technical resource at the disposal of a sitting government. This affects profoundly its ability to make the right interventions and develop sound policy. It also has, to our knowledge, no Parliamentarians with a detailed technical knowledge or who communicate confidently in the field. Vitally, it has no retained advisers who are expert in tax.

Clearly all opposition parties lack the technical resource available to the government, because they do not have the resources of HMRC and the Treasury or another Department at their command.  I am not so confident that Richard and Jolyon are correct in the conclusions they seem to draw from this however: civil servants are required to develop and implement the ideas the government asks of them.  So behind the scenes they might advise ministers they are making, in the words of Sir Humphrey in Yes Minister, a “brave decision” and do their best to point out any pitfalls in what is proposed.  Nevertheless anyone who has worked on a Budget will also have worked on making some mad idea work as well as it can work once the advice to think again has been rejected.

Similarly different civil service cadres may have their own shopping list of pet policy ideas which they try to get into the “Budget possibles” list time and again…. but Ministers decide.  In other words, the development of sound policy does not necessarily require the technical resources of government, and more often than you think governments push forward their policy agendas in the teeth of their own technical advice.

The more interesting, to me, comment is the reference to the Labour party lacking “Parliamentarians with a detailed technical knowledge or who communicate confidently in the field.”  Yes; look at any Hansard report of a “debate” on any Finance Bill and you will see the level of discussion is absurdly poor.  I have long wondered why this is the case, particularly as the last few years of my own Revenue career were devoted to producing the documents which would allow parliamentarians to debate the proposals they were being asked to implement on a level playing field with Ministers.

The whole purpose of the “better regulation” agenda is to produce fewer, better regulatory burdens on business by requiring policy makers to consult before their introduction and publish cost/benefit analysis to enable a considered decision to be made of whether a regulation is proportionate and effective.  Tax has never quite fitted into this framework (is a tax also a regulation?  discuss, using both sides of the paper) but the “new approach to tax policy making” comes from a better regulation perspective.  In other words, when MPs debate tax changes, they have available to them background documents which should set out, in plain English, why the change is desirable, what it is designed to achieve, how much it will cost or raise in tax and how much it will cost to administer and collect.  If they cannot achieve a reasoned debate under those circumstances, then perhaps a “detailed technical knowledge” isn’t going to help much either?

To me, the real question is at heart the one I have posed in this blog time and again.  How are we to include the tax muggles in the tax conversation?  It is of little use to say that one side of the debate has more tax wizards than the other.  The analogy is a good one, I think.  If detailed technical knowledge of tax is considered as an arcane magical power (almost as if, like Rowling’s magic, some people are just born with it but they are all trained in the same schools) then the question isn’t whether Dumbledore or Voldemort will prevail.  (You may, of course, see the Dark Arts emanating from whichever party you prefer!)

Imagine for a moment that Rowling’s magic were real.  Would we, the muggle world, sit by and let Dumbledore and Voldemort’s forces duke it out and be grateful we weren’t involved?  Or would we, more likely, look for ways to uncover, understand, and neutralise the lot of them?

Nuke Hogsmeade?

The reaction of tax experts to (for example) tax justice campaigns seems to me to exist on that sort of level, as if the proposal weren’t to put trade unionists and civil society representatives on the Board of HMRC but to nuke the entire tax profession.

I wish Richard and Jolyon well with their suggestion that the Labour Party should take on some retained advisers who are expert in tax.  (I imagine they might want to apply for the posts: I know I would!)  But the real question to me is, how are we to involve the people who don’t understand tax but nevertheless have to pay it, and who depend on its collection to pay for services.  In my view, that’s where the tax conversation needs to go next.

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Muggle morality

February 24, 2014

Let’s talk a bit about “fairness”.  Or about “morality”.  Or we can talk about “equity” instead, if you like.  After all, “there is no equity about a tax” (Mr Justice Rowlatt in Cape Brandy Syndicate, 1921), and “there is no morality in a tax and no illegality or immorality in a tax avoidance scheme.” (Lord Templeman in Ensign Tankers v Stokes in 1992).  That’s tax wizard talk: people with a professional interest in tax can sometimes get caught up in the idea that tax is legal confiscation of private property and no overbearing state ought to be able to dip its hand in your pocket without good reason and legal backing, preferably from a body of law hallowed by time and created by a democratically elected parliament.  Quite right too… except, is that really the problem, in a twenty-first century democracy?

Let’s be clear: if HMRC were coming through my front door with guns I’d be against it.  When I DO deal with the actual HMRC, I get pretty pissed off if they’re inefficient, rude or inaccurate… but please note that I haven’t (so far) disappeared into a gulag for arguing my corner with them if they happen to stray.  In general, if they put their hand in my pocket, I’d rather they didn’t but I accept I also would rather have an education, an army, a National Health Service and a few quid back from the state when I’m too decrepit to work any more: that tax is, indeed, the price we pay for civilisation.  That, then, for me is the first point where morality comes into it.  We pay taxes for a good reason, we obtain public goods as a result, and it’s pretty contemptible to take the goods and weasel out of paying towards them.

But the crunch point for me isn’t there, in the dealings HMRC has with the individual citizen, but in the relationship between the state and the multinational corporation.  The hollowing out of the state by offshoring profits to tax havens (as described, for example, in Richard Brooks’ The Great Tax Robbery) seems to me to be contributing to all kinds of inequality and unfairness (see some of the examples quoted by the Tax Justice Network).  Is the relationship between the state and the multi-national analogous to the relationship between the state and the private citizen?

Well let’s think about it.  For one thing, the multinational may well have more money.  (Walmart is bigger than Norway, Apple is bigger than Ecuador…)  They may be able to bring influence to bear which the private citizen would be unable to exercise by the exercise of their single vote.  They may be able to persuade governments to modernise any inconvenient rules (for example) “to better reflect the way business operates in a global economy“, costing the economy £450 million this year, rising to £805 million in 2016/17 against not a penny of quantified benefit.

The tax wizard might be right that there is no moral failure in a corporation arranging its affairs to pay the least amount of tax according to the law of the land.  But if the corporation has the ability to influence the making of the law by which it is taxed, is there a moral failing in its doing so?

In tax policy-making, perhaps it is politicians who are failing to make moral choices when they allow themselves to be influenced?  Or perhaps it is our fault, as citizen-stakeholders, for not holding our politicians to account?

It’s not an easy thing to do – is anyone actually doing it? (Margaret Hodge?  Any time her name comes up in the news my twitter feed comes instantly alive with tax wizards complaining about or mocking her.  Similar animus is shown towards Richard Murphy)

So what are the rest of us, those of us who aren’t tax wizards and are pretty sure the “no equity” thing is a crock, to do?  Well, fellow muggles, here’s my attempt at a muggle moral maze.

  1. If it is morally justifiable to arrange your tax affairs so that you pay the least amount of tax possible under the law, and
  2. It is morally justifiable to influence tax policy making so that laws which would tax you more heavily are not passed and laws which are favourable to you are, and
  3. It is morally justifiable to say that it is up to parliament what laws they pass, then,
  4. Logically it must then be the moral responsibility of the citizen stakeholder to exercise the only power which remains in their hands…

So to arms, citizens!  Any time someone asks you for their vote ask them a simple binary, muggle, question: are they in favour of tax competitiveness, or of tax justice?

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#taxjustice

November 25, 2013

I was in the wrong place this morning, at the conference on Tax Justice: Are You Serious? organised by various NGOs.  It was interesting, but it was clearly a campaigning event and I’m not signing up to the campaign, not just yet.  Not because I don’t believe they’re right to seek tax justice, but because I’m not quite sure there’s any clarity there about what we mean by “tax justice”.  (A particular low point was the vehement person arguing from the floor that organisations should campaign for people to refrain from using ISAs in the same way environmentalists campaign to get people to change their personal use of resources.  Just, no, sorry – as, to be fair, the speakers quickly clarified.)

My interest in the campaign is in the interface between fairness and expertise – as the tax tweeters immediately identified when the conference was first mooted “there’s no-one on the panel who knows anything about tax”.  Richard Murphy, Richard Brooks and Prem Sikka presumably being considered not to know anything about tax because they disagree with the argument that labels Margaret Hodge a “tax prat”.

I have three suggestions for how the campaign could be taken forward, though.

1. Use the mechanisms that already exist.  The government puts its tax legislation out for consultation.  Answer them!  I do – but what would happen if a hundred thousand people did?

2. Use the opportunities that already exist.  The government asks for ideas for the Budget (the Treasury confirmed in an email to me on 21st November that

A call for suggestions for Budget 2014 will be published [on gov.uk] early in 2014, once the Chancellor has announced the date for the Budget.

Cohere around a few simple talking points and put them in as Budget Suggestions, and encourage members of membership organisations to put them in separately too.  (Happy to help if people want ideas about WHAT to suggest!)

3. Use the regulations that already exist.  The government gave a public undertaking (in a written ministerial statement) to publish TIINs with tax legislation.  The statement said that

These notes set out what the policy change is, why the Government are proposing the change and a summary of the impacts of the change.

So let’s take a look at a few – like the ones for the abolition of CFCs, and for the introduction of the Patent Box – and, oh look!  They say the policy will be subject to review.

Has anyone seen a review yet?  FoI, anyone?

Just a thought!