Another few weeks in “tax land”

There are signs that the quality of the Scottish independence debate is at last improving.  The ‘NO’ campaign’s relentless negativity is now being commented on and it is also being asked questions concerning what happens if Scotland votes ‘NO’.  The ‘YES’ campaign also seems to be finding its feet and the Scottish Government has published a number of detailed policy papers.  It is though it’s “White Paper” that is eagerly anticipated.    

Further evidence for this improvement comes from the Law Society of Scotland.  The Law Society published its paper titled: “Scotland’s Constitutional Future Views, opinions and questions” this week.  The paper can be found here.  This is an excellent contribution to the debate and asks questions of both sides.

In particular I liked its comments surrounding Scotland’s membership of the European Union.  It is quite obvious to anyone but the most one-eyed commentator that it is going to be very difficult to get more clarity on this issue without the cooperation of the UK Government.  It seems, and for purely political reasons, that the UK Government does not want clarity on this issue.

The following quote from the paper is also telling: “Scotland, as part of the United Kingdom, complies with the European Union treaties and the EU acquis ((all the EU laws, treaties, declarations and resolutions, international agreements and the decisions of the European Court of Justice, i.e. Europe as it is). Whether by way of accession or amendment to the treaties following negotiation, Scotland should be able to qualify, in legal terms, for EU membership in its own right.”  I was also pleased to see that Sir David Edward’s (a former judge of the European Court of Justice and one of the foremost European lawyers in Scotland) common sense analysis of this issue being quoted.

As someone who spent a great deal of time researching and writing about the options for the devolving of substantial tax and fiscal powers to the Scottish Parliament, I was also very pleased to see the ‘NO’ campaign being asked some basic questions such as “which powers” and “when” if Scotland votes ‘NO’.

Now to Wales.  It seems that the UK Government is going to consult again on whether control of SDLT is to be devolved to the Welsh Parliament.  The following story on this from the BBC website shows the increasing frustration at the UK Government’s continued delaying tactics.  The reality is that Westminster only devolves power as a matter of last resort.  All the usual tactics are being used here and in particular the need for yet another consultation.  The latest consultation can be found here and the report from the BBC news website can be found here.

Let’s now take a minute and compare and contrast the next few stories.

An independent Scotland would offer tax incentives to film and TV productions according to Scotland’s Culture Secretary Fiona Hyslop.  More on this can be found here.

The Scottish Government has condemned a High Court decision that ruled applying a cap on housing benefits for disabled people lawful.  Firstly it would be helpful if the news reports explained or clearly stated that this was the “High Court” of England & Wales.  That said, Scottish Housing Minister Margaret Burgess has demanded, and it seems has had some success, that Scotland gets a fair share of the £35m funding pot set aside for those hardest hit. 

Interestingly she also said:  “The bedroom tax will hit the poorest hardest and it is wrong that it applies to people in crisis such as those in temporary accommodation and some supported accommodation.”  “Scotland is disproportionately disadvantaged because much of Scotland’s temporary accommodation is affected by the bedroom tax, unlike in England. The majority of our temporary accommodation is local authority owned, which is not the case in England.”  That begs the question:  Would a Scottish court have come to a different decision?  More on this can be found here.

The UK Government has outlined plans to give tax breaks to companies involved in the UK’s nascent shale gas industry.  It has proposed cutting the tax on some of the income generated from producing shale gas – found in underground shale rock formations – from 62% to just 30%.  This proposal has been criticised by environmentalists, with Friends of the Earth calling them a “disgrace”.  Just how generous are these tax breaks? Gas production is typically taxed at 62% although in some parts of the North Sea long standing operations are taxed at up to 81%.  More on this from the BBC news website can be found here.

Sometimes you have to wonder if Scotland exists.  Will the so-called “Mansion Tax” apply to Scotland?  No.  Do almost all the news stories refer to “Britain”?  Of course they do.  See for example this one from the Independent which can be found here.

11 of the 22 high-value settlements reached by HMRC last year were considered inadequate by the Tax Assurance Commissioner’s office, according to its first annual report. The office was created in February 2012 in response to criticisms of HMRC’s handling of big-money tax disputes.  More on this from Pinsent Masons can be found here.

Now to matters slightly further afield. 

Jersey fights back?  A report commissioned by Jersey Finance has found that Jersey helps the UK generate £2.3bn in tax revenues each year and supports 180,000 UK jobs by channelling foreign investment into the UK. It estimates that losses to the UK Treasury through legal tax avoidance via Jersey are well under £480m a year, while annual evasion costs are less than £150m.  More on this can be found here.

The French Government is to extend the capital gains tax exemption for second homes to properties owned for 22 years, rather than the current 30 year requirement. The 30-year rule was introduced by the previous Sarkozy government in February 2012 to replace the previous qualifying ownership period of only 15 years, but it accelerated the slump in France’s residential property market.  More on this from the Telegraph can be found here.  A good example of the schizophrenic relationship that exists between certain parts of the UK and France.

Early data collected by Swiss banks from their UK clients under the UK-Swiss tax regularisation agreement suggest that it may reveal far less untaxed income than the UK Government has claimed.  More on this from STEP can be found here.

An Irish parliamentary committee has voted down calls for multinational companies to be grilled in Dublin about their tax affairs, in the wake of a string of controversies at firms such as Google and Apple which use the Irish tax regime. Some of Apple’s largest Irish subsidiaries were found not to be tax resident anywhere, prompting Carl Levin, chair of the US Senate subcommittee on investigations, to call Ireland a tax haven.  More on this from the Guardian can be found here.

The Australian Tax Office will next year conduct 680 reviews and 115 audits of people suspected of using ‘secrecy jurisdictions’ to avoid paying tax.  This is in addition to 1,500 income tax reviews and audits of wealthy individual taxpayers.  More on this can be found here.

The US Internal Revenue Service has begun a drive against multinational companies whose permanent establishment strategies result in some profits not being taxed in any country, so-called “stateless income”.  More on this from Reuters can be found here.

The Spanish government is threatening to open tax investigations into the 6,000 Gibraltar residents who own property in Spain.  This is seemingly in retaliation for the Gibraltar Government’s attempts to exclude Spanish fishing vessels from its waters.  Spain is also considering imposing a €50 tax on vehicles entering or leaving Gibraltar; restricting the use of Spanish airspace to planes bound for Gibraltar; and taxing the many Gibraltar-based Internet gambling companies.  More on this from the BBC website can be found here.

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Another few weeks in “tax land”

Let’s start with Scotland.

According to a new report by the Scottish Government, the tax-take per person is higher in Scotland that the rest of the UK.  Finance Secretary John Swinney says the analysis of tax revenue over three decades proves the country “more than pays its way”.  More on this from the Herald can be found here and the Scottish Government here. 

One of the UK’s foremost ­experts on devolution has warned that new tax-raising powers for the Scottish Parliament have “serious limitations”.  Speaking to Holyrood’s ­finance committee, Gerard Holtham, who chaired a commission in Wales examining the case for more devolved powers for the principality, backed a much wider remit to allow the Scottish Parliament to vary individual bands within the income tax system.

Under the forthcoming Scotland Act powers, Holyrood will take control of a new Scottish rate of income tax, allowing MSPs to reduce or increase the levy as they see fit.  However, they will not be able to change the rates within the system, meaning that any change will apply to lower, middle and higher rates equally.  As I have argued on numerous occasions the Scotland Act 2012 income tax proposal is a mess and does not devolve any meaningful power to the Scottish Parliament.  More on this from the Scotsman can be found here here.

Interesting to see how the First Minister of Wales is following the First Minister of Northern Ireland.  They are both trying to use the Scottish independence referendum as a means to pressure the UK Government into devolving tax and fiscal powers.  More on this from the BBC news website can be found here.

An explanation as to why the First Ministers feel that they have to use this type of argument is shown by the failure of the UK Government to devolve air passenger duty.  Not all of the Calman Commission proposals were implemented by the UK Government.  Air passenger duty was one of the taxes although recommended for devolving was not devolved.  That is why the Scotland Act 2012 is called “Calman minus”.  That is also why we are still hearing calls for air passenger duty to be devolved.  More on this from the BBC news website can be found here.

It also seems that London does not want to be left behind.  Boris Johnson, the Mayor of London, is again calling for new financial powers for London.  The proposals, by the London Financial Commission who were appointed by Johnson, call for London to have the power to raise property and tourism taxes, and various housing and infrastructure spending powers.  More on this from the Guardian can be found here.  No matter the result of the Scottish independence referendum pressure on the UK Government to devolve power away from London, and ironically to London, will continue.  What is particularly interesting is that this does not just mean Scotland but almost every part of the UK.

The UK Chancellor should stop discriminating against visiting foreign musicians and artists by denying them tax breaks which are offered to top foreign footballers and athletes, leaders of Britain’s biggest orchestras have argued.  More on this from the Telegraph can be found here.

Launched in June 2010 by the UK coalition government, the National Insurance “holiday scheme” was aimed at cutting staffing costs for newly-established businesses outside London and the south-east of England.  Eligible firms do not have to pay NI contributions for their first ten employees, with a maximum saving of £5,000 per staff member in their first year.  However, the initiative, which is due to end in September, has failed to live up to its promise and it seems only a few companies have benefited from it. More on this from the Scotsman can be found here.

The House of Commons Public Accounts Committee has claimed that the UK’s largest accountancy firms are using inside knowledge from staff seconded to HM Treasury to help leading companies and wealthy individuals avoid paying UK taxes.  The Public Accounts Committee has also recommended that these companies should be prevented from advising the UK Government on tax law.  In its report on this issue they also claim that these firms have “undue influence over the tax system”.  More on this from the BBC News website can be found here.

A controversial “sweetheart” tax deal between HMRC and Goldman Sachs worth up to £20m, was agreed in part to avoid embarrassment to George Osborne, according to the UK Government’s former head of tax.  Dave Hartnett has said that he decided to settle the long-running dispute after Goldman Sachs threatened to pull out of a prized new tax framework a week after the UK Chancellor had announced that the bank had signed up to it. More on this can be found here.

HMRC raises yield from wealthy taxpayers again.  The top 1% of earners paid 26.5% of the total income tax take in 2012/13, according to figures from HMRC.  More on this from the STEP journal can be found here.

The Scottish Government has published a bill aimed at tackling illegal dumping. The Landfill Tax (Scotland) Bill will transfer responsibility from the UK Government for administering the tax and encourage the proper disposal and recycling of waste.  More on this can be found here.

The Financial Transactions Tax has been in the news again.  The negative reaction from the City of London is as expected.  What is slightly more surprising is how far the UK Government will go to prevent this tax from coming into existence.  The UK Government has launched a legal challenge against plans for a European Financial Transactions Tax.  More on the UK Government’s challenge from the BBC news website can be found here and more generally from the Telegraph here.

Now to an example of European cooperation.  The UK Chancellor of the Exchequer has signed an information exchange agreement with the finance ministers of France, Germany, Italy and Spain in yet another attempt to crack down on tax evasion.  Under the agreement, banks in these countries will be forced to reveal financial details of foreign clients.  More on this can be found here.

Now to matters further afield and a relatively new area for taxation, the internet.  By a vote of 75 to 24, US senators adopted an amendment to a Democratic budget resolution that, by allowing states to “collect taxes on remote sales,” is intended to eventually usher in the first national, i.e. American  internet sales tax.  More on this can be found here and here.

Now to Greece.  The International Monetary Fund has criticised Greece for making very little progress in tackling its notorious tax evasion problem.  It says the rich and self-employed ‘are simply not paying their fair share’ and the tax authorities are still bedevilled by ‘pervasive political interference’.  The IMF also said that Greece is making progress in overcoming deep-seated problems in the midst of a very serious and socially painful recession. More on this can be found here. 

Finally the not unexpected news that Silvio Berlusconi’s four-year conviction for tax fraud on TV rights bought by his Mediaset TV empire has been upheld.  Mr Berlusconi had appealed against a sentence passed by a lower court in 2012, which had found him guilty of tax fraud, but the appeals court reinstated the 2012 conviction and said he should serve four years in jail. More on this can be found here here.

Have a good weekend. 

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The UK Chancellor receives a shock in “tax land”

The main story of the week has to be the fact that the UK Chancellor, yes the UK Chancellor, said:  “I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs – and to be fair it’s within the tax laws – so that they were regularly paying virtually no income tax.  And I don’t think that’s right.”

Words almost fail me.  Then again maybe I should be glad that George Osborne has finally realised what was clearly obvious to everyone else.  HMRC provided the UK Chancellor with anonymised copies of the confidential tax returns submitted to them by some of the UK’s wealthiest people.  These returns showed that the 20 biggest tax avoiders had legally reduced their income tax bills by a total of £145m in a year.  According to the report, the very rich have managed to reduce their income tax rate to an average of 10%; less than half the amount paid by the average Briton.  A report on this from the BBC news website can be found here.  Helpfully the BBC news website has also outlined the most common tax avoidance schemes.  This can be found here.

I am not sure that the Prime Minister’s announcement that he will publish details of his taxes is going to help the UK Government out of the hole they are digging for themselves.  As the UK Chancellor noted, these people are acting within the law.  Take for example the proposed cap on income tax reliefs.  The cap will apply only to those reliefs that are currently unlimited, which will therefore exclude pension contributions and EIS investments, among others.  The proposals will cap tax relief to 25% of income or £50,000 whichever is greater.  It is expected the draft legislation will be published for consultation later this year.

HM Treasury has now published more information on this proposal.  The report, which confirms charitable gift relief will be included in the cap, can be found here.  The report notes that current unlimited relief policy allows individuals to pay no income tax at all, which is not permitted in, for example, the US tax system.

Is that the end of the matter?  Of course not.  The Scotsman reports that Sir Tom Hunter has criticised George Osborne’s plans to cap tax relief on charitable donations as “ill-thought-out and punitive”.  The Scotsman article can be found here.  It is quite clear that charities fear their funding is under threat.  This sums up nicely the problem facing George Osborne.  He wants to crack down on aggressive tax avoidance but that is easier said than done.  Almost any proposal to change the tax system results in a campaign to prevent or amend the proposal.

Now to another controversial issue, retrospective changes to tax law.  HM Treasury has published the process it will follow when making unexpected changes to tax law.  The statement gives an undertaking that retrospective measures will be “wholly exceptional”.  The statement from HM Treasury can be found here.  A recent of example of a retrospective change to tax legislation involved Barclays bank.  A BBC news website report on the Barclays bank matter can be found here.  If the UK Chancellor is serious about tackling aggressive anti-avoidance then I am sure we will see many more examples of retrospective changes to our tax law.

Finance Secretary, John Swinney, has announced incentives and actions to stimulate investment, in four enterprise sectors, for green energy, manufacturing and life science.  These incentives include business rate discounts worth up to £275,000 per business or enhanced capital allowances, new streamlined planning protocols across all sites, skills and training support and an international marketing campaign to promote the sites.  A press release from the Scottish Government on this can be found here.

Now to VAT and two issues I have blogged about before.  A great deal has been written about pasties and VAT since the UK Budget statement.  What though of another VAT anomaly.  Why is VAT levied on the renovation of old buildings but not on the sale of new houses?  Does this encourage energy saving?  Does this encourage the building of new homes?  Why not at least introduce a lower rate of VAT on residential renovations and repairs, as happens in the Isle of Man.  Sadly more questions than answers or signs of any change of policy.  A link to my earlier blog on this issue can be found here.

The Scottish Liberal Democrats have urged the Scottish Government to drop their plans for a single police force over concerns that the force will potentially face an annual £22m VAT bill. The eight existing forces are currently exempt from the tax due to their ties to local authorities.  A link to an earlier blog that covers this issue can be found here.  My earlier blog also includes my expectations as to how HM Treasury will view this matter.  Although I can understand the Scottish Liberal Democrats opposition to the single force policy, do they really think that the VAT should be levied?  If not, will they lobby their UK counterparts who, after all, are in charge of HM Treasury on this matter?  I suspect not.  The Liberal Democrats press release can be found here.

To Wales and the news that Welsh supermarkets have seen a massive drop in the use of plastic bags when they charge for them.  A 5p bag levy was introduced across Wales last year.  A report on this from the Daily Mail online can be found here.  Good to see the Daily Mail outlining the situation in the other parts of the UK.

The Spanish Government has announced a general tax amnesty offering taxpayers the chance to disclose irregularities in their past affairs without being prosecuted or penalised. The cost is a one-off payment of 10% of all undeclared assets and rights.  This follows similar measures in Greece and Italy.  More information on the Spanish amnesty can be found here.

Have a good weekend.

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A glorious week of sunshine in “tax land”

I will start with where to find one of the most comprehensive and detailed review’s of last week’s UK Budget statement.  The link is to the always impressive Institute of Fiscal Studies and can be found here.  In particular see the “Business tax, stamp duty and anti-avoidance slides”.  Slide 9 on “Forecast revenue from anti-avoidance measures” is particularly revealing.

Now to the fiscal powers debate.  I was disappointed to see that Peter de Vink has been deselected by the Scottish Conservatives.  Peter was hoping to be elected to Midlothian Council in May.  As far as the fiscal powers debate is concerned this shows that there are some on the centre right in Scotland who can see the opportunities that fiscal autonomy or independence could bring.  Peter’s article in the Herald can be found here.

The First Minister has announced the setting up of a “Fiscal Commission Working Group” to establish a fiscal framework for an independent Scotland.  The group will include former World Bank Chief Economist and Nobel Prize winner Jospeh Stiglitz of Columbia University.  My only slight concern relating to this group is that it comprises four economists, albeit eminent economists.  This group needs to ensure it has an understanding of the underlying law and legal framework that is crucial to creating a new fiscal framework for Scotland.  That includes the creation of a Scottish Exchequer.  I will once again reiterate my call for a review of all government tax, law and registration services in Scotland.  A Scottish Government press release on this can be found here.

I was also interested to read about a report by the David Hume Institute which claimed that an independent Scotland would be liable for around £100bn of debts and liabilities.  In particular I was interested to see one of the first references to the “other side of the balance sheet”.  The report says that the UK has approximately £821bn of “assets”. The £100bn figure comes from deducting £69bn of assets from approximately £152bn to £171bn of debts and liabilities.  A Scotland on Sunday article on this story can be found here.  This particular part of the fiscal powers debate has a long way to go.

In advance of May’s local government elections, Reform Scotland has called for non-domestic rates to be devolved in full to local authorities.  This would mean a variable business rate in different areas of Scotland.  The Reform Scotland paper can be found here.  Non-domestic rates is one of two tax powers presently devolved to the Scottish Parliament, the other being council tax.  Although these taxes are administered by the local authorities control rests with the Scottish Parliament.

The proposal would also mean that local authorities would keep the revenue they collect from business rates.  At the moment this revenue is handed back to the Scottish Government.  The Scottish Government then redistribute it as part of its grant to each local authority.  The Reform Scotland proposal could also be used as a framework for when control over the Crown Estate is devolved to the Scottish Parliament.

According to a study carried out by accountancy firm UHY Hacker Young, Edinburgh businesses contribute more to the UK economy per head of population than any other major city in the UK.  The main reason given is that Edinburgh wasn’t hit as hard by the financial crisis as London.  In addition, oil-rich Aberdeen was the only major UK city to see its economy grow during the recession.  This is excellent news for the Scottish economy.  An article from the Scotsman on this can be found here.

Now to corporation tax.  The Financial Times recently reported on how 15 multinational companies are considering locating substantial operations in Britain as a result of UK corporate tax reforms.  What I found most interesting about this report is when tax competition is discussed in a UK context it is a positive thing.  Contrast this with the tone of the debate over devolving control over corporation tax to the Scottish Parliament.

Continuing on the corporation tax theme.  It is not just the headline rate of tax that is important.  The underlying law which deals with, for example, reliefs is just as important.  Further evidence for this is shown by a recent statement by the European Commission.  The European Commission are claiming that the UK is breaking European law by imposing an immediate capital gains tax charge on companies that relocate to another EU member country.  The Commission has requested that the UK abolish this exit tax within two months, or be referred to the European Court of Justice.  I await the reaction to this by the UK Government with interest.  The statement from the European Commission can be found here.

The Unoccupied Properties Bill has been introduced at Holyrood.  At the moment empty and unfurnished residential properties are exempt from council tax for the first six months.  After that period, they qualify for a 10% discount.  Under this Bill local authorities will be given the power to charge up to twice as much council tax on residential properties that are empty and unfurnished.  It is hoped this will act as an incentive for home owners to bring their empty houses back into use.  The Scottish government has also announced a new loan fund which will be specifically targeted at projects bringing properties into use for affordable housing.

The new bill will also controversially reduce the non-domestic business rates discount for some empty commercial properties from 50% to 10%.  The argument put forward is that this will encourage owners to bring boarded-up shops back into use.  A report from the BBC news website on this can be found here.

Now to England.  Over 85% of local authorities have accepted the UK Government’s offer to freeze council tax rates.  This is contrast to the agreement reached between the Scottish Government and all of Scotland’s local authorities.  England’s local authorities were offered a one-off grant worth 2.5% of their budget if they agreed to the freeze.  More on this can be found here.

Let’s end with Wales and the news that the Welsh Government has started to consult on whether Wales should be a separate legal jurisdiction.  The Welsh government will ask the judiciary, lawyers and members of the public whether they want a jurisdiction along the lines of those found in Scotland and Northern Ireland.  An article from the Law Society Gazette on this matter can be found here.

Have a good weekend.

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