Another few weeks in “tax land”

Let’s start with the incredible revelation that large multi-national companies put a great deal of effort into paying as little tax as possible.  The debate surrounding this issue is long overdue.  I am also glad to say that there has been some great commentary on this issue.

Examples include:  Ian Bell’s: “It’s not an accident Westminster’s financial system allows tax avoidance … it’s designed that way”.  His article from the Herald can be found here.

Joyce McMillan outlines the wider debate and criticises the focus at Westminster on benefit fraud rather than tax avoidance.  Her article from the Scotsman can be found here.

George Kerevan’s article titled: “Taxing questions for complicit governments” from the Scotsman can be found here.  This is from the article: “The current generation of highly profitable internet companies have taken (legitimate) transfer pricing to extraordinary new limits. Google manages to operate almost tax-free in the UK, France and Germany, despite generating more than £35 billion in revenues in all three countries.”

Alsion Rowatt writing in the Herald comments on the increasing evidence of multinational corporations’ tax avoidance and criticises the HMRC for not keeping up with the internet age.  This article can be found here.

And from the Guardian: The bosses of some of Britain’s largest multinational corporations have urged David Cameron to stop moralising and rein in his rhetoric on tax avoidance.”  The article in full can be found here.

For an example as to how far some companies will go look no further than our utility companies.  More on this from the Telegraph can be found here.

To summarise.  Companies rarely consider “morality” when deciding how much tax to pay.  I use the word “decide” intentionally.  These companies after all have a duty to their shareholders.  The fact is that UK and international taxation law is full of holes and has always been.  The politicians know this.  The politicians have always known this.  In the so called good times this issue was simply ignored.  Is there an easy answer? Of course not.  Do the politicians desperately want to be seen to be doing something? Of course.  Is there a huge amount of hypocrisy around this issue?  Yes.  Do governments want inward investment?  Yes.  Will they offer tax breaks to achieve this?  Yes.  Is the headline rate of tax the only deciding factor for companies?  Of course not.  Is there a growing perception in the UK that the taxation favours certain sectors over others?  I believe so.  Is this debate going to continue?  I hope so.

Now to the fiscal powers debate and two stories on the Scottish Conservatives.  The headlines contain the phrases “under attack” and “under fire” and show how difficult a position Ruth Davidson is in.  It seems she is damned if she does, damned if she doesn’t.  The Scotsman article can be found here and the Herald article here.

The head of one of the UK’s largest quarries has accused tax collectors of “arrogant and high-handed behaviour” ahead of a case this week involving millions of pounds in unpaid aggregates levies.  Aggregates levy was of course one of the taxes recommended for devolving under Calman.  The article from the Scotsman can be found here.

Now to London.  Boris Johnson continues to argue that London should have the same fiscal powers as those available to the devolved parliaments in Scotland and Wales.  This is a debate that is going to run and run.  More on this can be found here.

HMRC has begun a campaign to make professional football managers and coaches regularise their tax position. It has forced the English Football Association to provide a list of its 3,300 registered coaches, and has written to them all warning that “we have received extensive data about coaches from sources in the football community”.  Presumably HMRC knows that football is played in Scotland as well.  More on this can be found here.

Now to Europe and another example of the increasing role it is playing in tax matters.  The European Commission will present a legislative proposal to require the EU-wide automatic exchange of all types of information on taxable incomes, including dividends, capital gains, salaries, directors’ fees, pensions, life insurance and rents, rather than just interest as now. It will be implemented by an amendment to the EU Directive on Administrative Cooperation which came into force in January.  More on this can be found here.

Now to the USA.  Criminal investigations by the Internal Revenue Service rose 9% to 5,125 in the last fiscal year.  The number of convictions has risen to 2,634 aided by a 93% conviction rate.   More on this can be found here.  I suspect the trend is similar in the UK.

Again from the USA and a story that will I am sure run and run.  The IRS has admitted that its staff gave special scrutiny to the tax-exempt status of organisations supporting the conservative Tea Party alliance during the 2012 presidential election campaign. The IRS says it was trying to distinguish between political organisations as such, and social welfare organisations that are not allowed to engage in political campaigning as their primary activity.  US President Obama has now sacked the Head of the IRS, Steven Miller and the FBI has launched a criminal investigation into the affair.  Two articles on this from the Wall Street Journal can be found here and here.

And finally to France.  The French Government has dropped plans for corporate governance legislation to cap executive pay. Instead the 2014 Budget will introduce the long-threatened 75% levy on employers who pay salaries over €1m.   More on this from Reuters can be found here.

Have a great weekend.

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Local government election week in “tax land”

Where to start?  Tax and morality seems as good a place as any.

Cardinal Keith O’Brien has accused David Cameron of acting immorally by favouring the rich ahead of ordinary citizens affected by the recession.  The cardinal also denounced David Cameron’s opposition to a “Robin Hood tax” on financial institutions.  Those arguing for a European financial transaction tax have gone a bit quiet recently.  The cardinal’s interview has though brought this proposal back into the news.  Whether a tax such as this is introduced is though only part of the debate.  As with most taxation debates the secondary debate involves how the revenue should be spent.  The cardinal would like it spent helping the poor and vulnerable at home and abroad.  Others want an emergency fund for the next banking crisis.  An article from the BBC new website on this can be found here.

Now to the London mayoral debate. Included in Boris Johnson’s manifesto for a second term is a proposal to set up a commission that would explore the possibility of a “Barnett” style formula for London.  Johnson wants to keep more of the tax raised in London to be spent in London.  An article on this from the Guardian can be found here.  This is further evidence of how quickly the fiscal powers debate is moving.

The Scotland Bill has received its Royal Assent.  An article on this from the BBC news website can be found here.  A missed opportunity?  I think so.  That said, even under the Scotland Act (2012) we are going to have a Scottish tax system.  I am of course looking forward to the Scottish Government’s consultations on the tax powers being devolved but why stop there?  It is surely now obvious that we need to start thinking about the type of tax system we want.  That must include a review of all government tax, law and registration services and the creation of a Scottish Exchequer.

Good to see an article in the Herald on something I have written about recently.  Businesses in new Scottish enterprise zones will be able to claim up to 100% business rates relief as part of new incentives to stimulate investment in the economy.  Other measures announced by the Scottish Government include more efficient planning procedures, improved broadband, targeted capital allowances and international marketing.  The article in the Herald can be found here.

Another article from the Herald, this time on an “unprecedented” number of business rates appeals.  The article reports that court cases have been launched by retailers in Edinburgh, Glasgow, Dundee and Kirkcaldy and elsewhere as firms contest the size of their rate bills.  The article from the Herald can be found here.  The main argument being used is that the current rates were calculated in 2008, before the extent of the downturn became apparent.

For those of you interested in tax statistics, the relevant HMRC page can be found here.  For those of you interested in tax consultations, current HMRC consultations can be found here and current HM Treasury consultations here.  There will be many more consultations added over the next few months as the UK Chancellor in his Budget made reference to approximately 45 consultations.

Approximately 12,000 people who had been told that they no longer needed to fill in self-assessment tax forms have been sent penalty notices in error.  To put this in context, 130,000 people were taken out of the self-assessment process for this tax year.  Some 850,000 people were sent penalty notices for failing to submit their tax returns on time this year.  This is 550,000 fewer than a year ago.  An article on this from the BBC news website can be found here.  As mentioned in this article it is likely that “HMRC’s resources” played a part in this latest error.

Nearly 60,000 more Scottish pensioners than first thought will be hit by the UK Government’s decision to freeze age related personal allowances according to new figures published by HM Treasury.  The figures show the so called “granny tax” will impact 423,000 pensioners in Scotland by 2015-2016.   The article from the Herald can be found here.

David Cameron has backed proposals for an “airline levy” to ease waiting times at London Heathrow Airport border control.  Airlines using London Heathrow would pay higher landing fees to pay for additional UK Border Force staff to help remedy the long queues currently occurring.  You would be forgiven for thinking there was an election in London this week.  The UK Government is not making many friends in the airline industry just now.  The spat over increases in Air Passenger Duty continues.  More information on this can be found in an article on the BBC news website found here.

Now to Europe and the “debt crisis” debate.  Financial Times journalist, Gideon Rachman continues to argue against European countries trying to spend their way out of their debt crisis.  This is a quote from his article:  “There is, of course, scope for argument about the pace of deficit reduction.  But in a highly-taxed, highly-regulated, highly-indebted continent like Europe, more state-funded public works would simply build another road to nowhere”.  The full article can be found in the Financial Times on 1 May.

I will finish on a matter I have blogged on before.  More than 2,000 public sector workers could be avoiding the full rate of income tax through special contracts, UK Government research has found.  An article on this from the BBC news website can be found here and my earlier blog here. This is an incredible figure as it does not include those in the NHS or local government.  Danny Alexander is seemingly “shocked”.  It seems that “shock” is becoming the default reaction for UK Government Ministers.  You may remember George Osborne’s was also recently “shocked” at the extent of tax avoidance.  Tax and morality it was ever thus.

Have a good weekend.  “Tax land” will be back in three weeks time.

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A fairly quiet week in “tax land”

I would like to start with an observation.  Over the last few weeks I have attended a number of tax and law update seminars.  Without exception the speakers have commented on the constitutional debate.  Why should that surprise me?  Even a few months ago this would not have happened.  There might have been the odd mention of the Scotland Bill but even that would just be in passing.  As one of the few lawyers who were willing to discuss tax issues in a constitutional context over the last few years I find this a welcome development.  You never know someone may even listen to my call for a review if all government tax, law and registration services in Scotland.

Most Scottish local authorities will by now have sent out their 2012/13 council tax bills.  This is of course an unusual bill as we know in advance that it will be the same as last year.  One notable exception is Stirling Council which it seems almost by accident reduced its council tax.  Although I get the sense that the council tax “freeze” is being taken for granted it cannot go on forever.  It is obviously important politically and not just because we are just a few weeks away from our local elections.  That said, at some point there needs to be a new review of how we finance local government.  As someone who believes that our councils should have a degree of choice in this matter I would like to see this review begin as soon as possible.

The fiscal powers debate had a fairly quiet week.  No new “commissions” have been announced which is a relief.  An old favourite of those who oppose devolution and independence did though rear its head again.  Ruth Davidson talked about giving Scotland something called “real devolution”.  For “real devolution” read “no more powers for the Scottish Parliament”.  Ruth Davidson said: “I want to talk about devolution – not devo max or devo plus, or devo mix, or I can’t believe it’s not devo – but real devolution from Holyrood to people and communities across Scotland.”  This in my opinion is   similar to the argument that the Scottish Parliament already has lots of fiscal powers that it simply fails to use.  That particular argument is rarely seen outwith the opinion pages of the Scotsman.

An example of this type of thinking was given recently when the UK  Government decided not to devolve control over the Crown Estate to the Scottish Parliament.  Instead the UK Government passed some control over Crown Estate revenue to the National Lottery.  A decision that I think it is fair to say was unexpected.  More on Ruth Davidson’s statement can be found here.  I will ignore the fact that Ruth Davidson appears to be at odds with what the Prime Minister said on his recent visit.

I have been following with interest the debate on introducing a “minimum price” for alcohol.  This is a rare example of a policy where the aim is clearly to change behaviour and not just raise revenue.  I have written before on how policy makers sometimes disingenuously argue that a policy is to change behaviour rather than increase revenue or vice versa.  Personally I have struggled to understand the opposition to this policy.  That said, do I think that a policy of minimum pricing on its own is enough?  Of course not, nor does the Scottish Government and the myriad of health professionals who support this policy.

Do I think that an even better policy could be developed if powers over alcohol duty were to be devolved to the Scottish Parliament?  Yes I do.  This was also pointed out in the Scottish Government’s paper on “Devolving Excise Duty in the Scotland Bill”.  Specifically this would allow the Scottish Government to “align the revenue benefit with the public spending costs of alcohol consumption.”  This would also ensure that the main downside of a minimum price policy, extra revenue for the retailers of alcohol, can be balanced out.  Lastly devolution, as I often say, is complicated.  It makes sense to devolve those tax powers that are clearly connected with already devolved areas of responsibility such as health.  The Scottish Government paper can be found here.  A report from the BBC news website on this issue can also be found here.

The UK coalition government are clearly worried as to how they are being perceived on the now rather unfortunate phrase: “we are all in this together“.  The Deputy Prime Minister is reportedly softening his proposals on a so called “tycoon tax”.  I am not sure why this idea is being called a “tycoon tax” as this is simply a minimum net tax rate for a person’s total income.  In a speech to the Liberal Democrat conference on Sunday he made no mention of a minimum tax rate less than 48 hours after announcing it.  This idea is not a new idea.  Most recently it has been advocated by President Obama.  It is also has the advantage of a being a fairly simple idea.  The Deputy Prime Minister has suggested a 20% rate.  President Obama a 30% rate.  The Obama proposal appeared shortly after it was reported that Republican candidate Mitt Romney, a multimillionaire, had a net tax rate of around 13%.  More on this can be found here.

Let’s finish with London.  Ken Livingstone has denied claims that he has not paid the “correct” amount of tax on his income.  Livingstone also claims that he is the victim of a “smear campaign”.  This story has some similarities with the furore that greeted the news that highly paid public officials were being paid via a company.  My earlier blog on this can be found here.  I have to admit to some sympathy with Livingstone on this one.  Yes there is an element of hypocrisy here but Livingstone is not an elected politician, albeit a candidate, nor is he is a public official.  An article from the Guardian on this can be found here.

Have a good weekend and let’s hope for some good news from Rome.

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