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9am Lowdown: Labour would 'scrap non dom' tax

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8th Apr 2015
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Morning, we hope you thoroughly enjoyed your Easter break. We're back to the 9am Lowdown! 

Labour would scrap non dom tax status 

A Labour government would abolish the non-domicile rule that allows some UK residents to limit tax paid on earnings outside the country, as Ed Miliband claims it is a symbol of tax avoidance, the BBC said.

* * *

HMRC updates agent authorisation form 

The Revenue has released an updated version of the COMP1 form which when filled out by clients gives HMRC temporary authorisation to deal with a tax adviser.

* * *

PwC sets sights on £56m extra return for MG Rovers creditors 

To mark 10 years since Rob Hunt, Tony Lomas, and Ian Powell were appointed as administrators of MG Rover Group, PwC said in a press release that it is looking into a number of claims which could lead to further recoveries for unsecured creditors. One relates to overpaid VAT of £56m dating back a number of years on vehicles manufactured by MG Rover and supplied to fleet operators. The matter is subject to litigation as there are competing claims as to who is entitled to the repayment.

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Replies (34)

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By User deleted
08th Apr 2015 10:12

The Non Dom proposals ...

... show just what a berk Milliband is.

I don't deny it needs work to stop contrived abuses, but for the true non-dom you have to weigh the benfits they may bring by establishing businesses here against any "lost" tax on their assets and income held outside the UK.

Next thing he will want to become a mini USA a tax UK citizens on worldwide income regardless of where they are living!

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Replying to Matrix:
Red Leader
By Red Leader
08th Apr 2015 11:34

non-dom

If the non-dom law is such a good idea for the UK, why don't other major economies have something similar?

It does seem ridiculous that a person born here and who has lived here most of their life can be non-dom because their father was a non-dom.

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By User deleted
08th Apr 2015 11:43

But if so ...

... most of their income will be UK based and taxable here.

As I said, it needs an overhaul, and some robust anti-avoidance provisions, but the net benefit to me outweighs the loss that would arise if this system were to change as proposed by Millibland.

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By Michael C Feltham
08th Apr 2015 13:11

Utter Shambling Nonsense!

EU citizens can reside in the UK for up to 6 months without a visa.

Business Visas can last for up to 10 years and cost a mere £737.

A business registered outside the UK fiscal territory can thus send a staff member backwards and forwards to the UK quite happily.

Therefore, a businessman (or woman) resident in say Belize, owns all assets through a  company (including a posh residence in Chelsea). The visitor can reside there for his/her visit: all provided he/she is paid and thus fiscally resident elsewhere.

Lord Ashcroft perhaps? Philip Green? etc.

 

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By Duhamel
08th Apr 2015 13:17

Agree with OGA
It should be revised, particularly for UK domiciled leaving to be Non-dom, but as a concept it should stay. I haven't looked at numbers, I suspect that will be key.

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Replying to lionofludesch:
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By Michael C Feltham
08th Apr 2015 13:50

How will that work?

The key to leaving is to own no property or similar in the UK.

The Gaines-Cooper case points the way.......

 

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By Montrose
08th Apr 2015 13:18

What about IHT ?

If domicile is to be ignored for tax-implied but not stated in EM's populist proposals- how will IHT be applied to immigrants and emigrants. When will a Brit emigrating escape the UK IHT net?

Red Leader, the Swiss Forfait system [being scrapped in some Cantons] allows a fixed Swiss Federal and Cantonal tax  bill for foreigners moving to Switzerland, and has much in common with the taxation of non-doms in the UK, but without the remittance basis.

 

For example, it excludes from exemption Swiss source income. If the individual enjoys treaty protected income , that too can be taxed in Switzerland if it exceeds the figure on which the Forfait is based.

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By mwngiol
08th Apr 2015 13:21

Politics

Like many other arguments of this kind, there are no reliable figures showing the cost/benefit one way or the other. So one can only assume that arguments on both sides are being made from a political rather than economic standpoint.

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By SPS
08th Apr 2015 14:23

Non Dom Tax Figures

http://www.telegraph.co.uk/news/general-election-2015/politics-blog/11522076/Non-doms-in-numbers-how-115000-non-doms-pay-as-much-tax-as-10-million-low-income-workers.html 

HMRC's figures.

 

Ed Balls has admitted his changes would reduce the tax take.  Same old, same old.

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By vstrad
08th Apr 2015 19:04

Double Taxation Treaties

Will not double taxation treaties greatly reduce the amount Ed thinks he can raise?

 

 

 

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Chris M
By mr. mischief
08th Apr 2015 19:23

At least it makes it simple!

Whatever the arguments about tax take, no one can argue that scrapping the non-dom rules would get rid of a complex chunk of UK tax law.  That can only be a good thing.

I would go further.  Any UK passport holder should have to account for all worldwide gains and income to HMRC.  When the USA brought this change in, there was a sudden drop in the number of folk holding passports in the likes of the Caymans, Belize and Costa Rica.

Whoever wins the election needs to get extra revenue from the wealthy people who do not pay their fair share due to these loopholes.  It's unfair on wealthy people who don't pull off these dodgy games in dubious tax havens.

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Replying to Wanderer:
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By vstrad
08th Apr 2015 19:40

I'm aghast, Mr Mischief

I'm aghast that you should suggest the UK adopts a similar degree of tax imperialism to that practised by the USA.

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Replying to Wanderer:
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By DavidJH
10th Apr 2015 13:18

You want citizen based taxation?

So let me get this right.  You want to replace residence based taxation with citizen based taxation, as exercised by the USA (and as used to be exercised by the old Soviet Union before even they decided it was inequitable)?  Is that your what you are saying? Comfortable with the company you'd be keeping?

 

I hold a UK passport. I have not lived in the UK for 10 years. I have no assets there or income there. I live elsewhere in Europe - not in a dodgy tax haven - and pay my taxes in the country where I am resident. I am not wealthy or a "tax exile" or exercising a "loophole". I am simply not living in the UK and have no intention of ever doing so againDespite having no intention of ever returning to the UK I am  a UK dom for tax purposes by virtue of being born there of British parents and so will forever be subject to IHT. So don't worry, you'll get some tax from me eventually. Want to explain the "fairness" in this? I sound bitter. I am not. I will be dead. But I guess my daughter (see below) might have something to say about a foreign government deciding to grab what little inheritance I make scrape together for her because you British think that's "fair". BTW, I rarely visit the UK, and do not take up my right to vote (why should I ? What you do in the UK is your concern, not mine. 

But you'd like me to pay tax to the UK because I hold a UK passport and this would be "fair"?  

I am not wealthy but sadly there are not enough wealthy to milk which is why the ordinary person has to cough up, and under your nice idea that would mean me.

Finally, here are the circumstances of my daughter:

 

 

 

She is a UK AND a Russian citizen. She has spend about 20 days of her life visiting relatives in the UK. When she is old enough to have an income, she will have to pay tax on a residence basis in the country where we live, which is the only country she has ever really known. But you'd like to tax her too because she happens to have a UK passport? Maybe Russia should get in on the act, go back to the old Soviet era tax laws, and grab some of her income too? Wait - she was born in the Netherlands. She doesn't have a Dutch passport but there's clearly a connection there. So maybe the Dutch should get a cut of the action too (similar to position of former US Green Card holders who remain forever subject to US tax payments)? Or maybe 4 countries: the UK, Russia, Netherlands and her country of residence could divvy it up "fairly". I wonder what "fair" would mean?

Perhaps it could be proportionate to where she actually lives (resides) and derives her income? Oops - that's the bit that's not fair, is it?

 

 

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Chris M
By mr. mischief
08th Apr 2015 19:57

Another change would involve any business with more than £100m sales to postcodes in the UK, but where the businesses are not headquartered in the UK.

Such businesses would be required to submit an analysis of sales and cost base by main region - Europe, Americas, Asia, Africa.  This would be used to adjust their transfer prices to the UK to the worldwide average, so that the overhead loading to the UK was not excessive.

Such an analysis would be optional, but the alternative would be an additional charge to corporation tax which would be 20% of the sales to UK postcodes.

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Replying to ireallyshouldknowthisbut:
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By Michael C Feltham
09th Apr 2015 14:13

Interesting Proposition!

mr. mischief wrote:

Another change would involve any business with more than £100m sales to postcodes in the UK, but where the businesses are not headquartered in the UK.

Such businesses would be required to submit an analysis of sales and cost base by main region - Europe, Americas, Asia, Africa.  This would be used to adjust their transfer prices to the UK to the worldwide average, so that the overhead loading to the UK was not excessive.

Such an analysis would be optional, but the alternative would be an additional charge to corporation tax which would be 20% of the sales to UK postcodes.

Let's see if I have this correct: you propose the UK government, via its organ, HMRC, imposing taxes on foreign companies?

How will they err, collect it? Send in the gunboats?

Every day, companies buy and import hundreds of millions of good from overseas: often for re-export, after adding value. The accounting records would become a nightmare. Would die the death as did such abortions as SET (Selective Employment Tax).

If a foreign company bases a subsidiary in the UK, then they do not do this for fun!

Companies such as Nissan, Toyota, Honda, et al, import good from Japan and elsewhere: they also need to repatriate funds, otherwise why become inwards investors in the first place!

Since they are selling proprietary IPR, then the overseas company bills the subsidiary for IPR license fees, components, financing costs and management fees.

What you propose would drive out a huge raft of UK based employers.

Great concept!

 

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Replying to petercooperuk:
By ShirleyM
09th Apr 2015 16:05

I read it wrong

I thought we were discussing the income of individuals, not companies.

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By ShirleyM
08th Apr 2015 20:12

How do they know what tax would be gained or lost?

As non-doms on the remittance basis don't declare foreign earnings ... how does anyone know whether tax would be gained, or lost?

Surely, non-doms will only pay on the remittance basis if it is advantageous for them to do so? I thought they could avoid remittance basis by declare their earnings, and pay tax on the actual earnings if they want to, so common sense says remittance basis is only used to reduce tax.

Have I got that wrong?

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Replying to lionofludesch:
By mwngiol
08th Apr 2015 20:49

My point exactly

ShirleyM wrote:

As non-doms on the remittance basis don't declare foreign earnings ... how does anyone know whether tax would be gained, or lost?

Surely, non-doms will only pay on the remittance basis if it is advantageous for them to do so? I thought they could avoid remittance basis by declare their earnings, and pay tax on the actual earnings if they want to, so common sense says remittance basis is only used to reduce tax.

Have I got that wrong?

That's exactly the point I was making. On the other side we also don't know how much the country would lose out as per OGA's point above. Lots of guesswork on both sides.

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Replying to lionofludesch:
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By Duhamel
08th Apr 2015 20:59

Doubt it
This just my guess but I think a significant minority of non doms don't really consider if its worthwhile claiming remittance basis or not. They just claim it and pay the charge on the assumption it's the best option.

Call it poor advice or lazy conclusions or whatever you like.

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By vstrad
09th Apr 2015 11:47

The only certainty ...

The only certainty about Labour's proposal is that the Treasury will lose the current income from the annual charge to non-doms who make use of the remittance basis option, some 47,000 people. This raised £223M in 2011-12 and, with the charge going up to £90k p.a. from 2016 for the longest stayers, can be expected to yield at least £300M in the future.

So, raising the "several hundred million pounds" that Labour claims will be extremely difficult, given that they will be starting from a baseline of minus £300M.

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By justsotax
09th Apr 2015 13:19

As shirley

suggests - it would appear 'odd' that as an individual you would choose to pay £90k pa to be worse off...and if the suggestion is correct that a number of these guys are rich and bring in business/wealth/spending capacity then that would suggest that the tax take would increase.  as for the students etc - I doubt they will have volunteered to pay money rather than disclose their worldwide income of zero pounds...

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Chris M
By mr. mischief
10th Apr 2015 06:49

The only certainty so far in the non-dom debate is that it has enabled Labour to open up a 3 to 5% lead in the opinion polls.  Whether this will last with a complete twit for a leader is questionable, but it demonstrates that "tax justice" - whatever that means - has traction with voters.

To Mr. Feltham, the UK already taxes all foreign companies which operate in the UK, they simply do not tax them enough.  The idea that the majority of Google's intellectual property resides in the Bahamas is a clear nonsense.

My system would give them a clear choice - pay a reasonable share of UK taxes if you want to sell millions of items to UK customers, or get lost.  To take one example, Starbucks' UK operations are held up as the way to operate worldwide in their franchises yet they pay a laughable amount of tax here.  A company like Starbucks will stick around under the new system, they just won't be able to undercut UK rivals like Costa or someof our clients running coffee shops purely on tax.

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Replying to Holliebops:
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By Michael C Feltham
11th Apr 2015 14:34

Hmmm..Nice Idea: but,

mr. mischief wrote:

To Mr. Feltham, the UK already taxes all foreign companies which operate in the UK, they simply do not tax them enough.  The idea that the majority of Google's intellectual property resides in the Bahamas is a clear nonsense.

My system would give them a clear choice - pay a reasonable share of UK taxes if you want to sell millions of items to UK customers, or get lost.  To take one example, Starbucks' UK operations are held up as the way to operate worldwide in their franchises yet they pay a laughable amount of tax here.  A company like Starbucks will stick around under the new system, they just won't be able to undercut UK rivals like Costa or someof our clients running coffee shops purely on tax.

Please explain quite how you would renege on the 100+ Double Taxation Treaties in force to which the UK is a signatory?

Quote:
     Double tax treaties

Double Taxation Treaties are conventions between two countries that aim to eliminate the double taxation of income or gains arising in one territory and paid to residents of another territory. They work by dividing the tax rights each country claims by its domestic laws over the same income and gains. Over 1,300 Double Taxation Conventions exist world-wide. The UK has one of the largest networks with more than 100.

Source: ICAEW: http://www.icaew.com/en/library/key-resources/double-tax-treaties

To unilaterally renounce such agreements would cause an immediate series of reprisals: and much annoy the WTO!

Quote:
My system would give them a clear choice - pay a reasonable share of UK taxes if you want to sell millions of items to UK customers, or get lost.

Goodbye inwards investors and hundreds of thousands of new unemployed workers...........

Now, I'm pretty much a radical and believe dire problems demand radical solutions.

Unfortunately, in the real world in which I have the misfortune to dwell (Grin!), as with Newton's First Law of Motion, any action in a balanced system, involves equal and opposite reaction. Dynamic socio-economies behave in precisely an identical fashion.

 

 

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Chris M
By mr. mischief
10th Apr 2015 16:05

Not necessarily

No you would not necessarily have to pay any UK tax.  But in my view anyone who holds a passport of a given country should be fine with accounting to that country for their worldwide income and gains.  I have several clients who currently need to do this but still pay no UK tax, because of double tax treaties with countries where most of the income arises.

In my view this one measure would kill dead a lot of the abuses right away.

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By Michael C Feltham
11th Apr 2015 14:39

@DavidJH

There are a number of ways to address this and avoid UK IHT on your estate.

Solution depends where you are fiscally based, etc.

Call Blevins Franks as a starting point.

https://www.blevinsfranks.com/Home

(I have no professional connection with the stated firm.)

 

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Chris M
By mr. mischief
11th Apr 2015 21:33

You are talking drivel

The double taxation treaties would remain in force, unchanged.  The calculation of UK corporation tax would change, nothing else.  It is possible - likely in fact - that this would mean the UK tax charge would be higher, and hence the tax arising in Bermuda, Panama, Costa Rica, Belize and so forth would be lower than the UK charge.

if every country in the G20 did this, no doubt the econmies of these dodgy tax havens would be severely damaged.  I see this is a further benefit of the new system.

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Replying to kevinringer:
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By Michael C Feltham
12th Apr 2015 14:38

Interesting concept........

mr. mischief wrote:

The calculation of UK corporation tax would change, nothing else.  It is possible - likely in fact - that this would mean the UK tax charge would be higher,

You are aware, I trust of the reality of international accounting regulations and the move towards global harmonisation of rules?

What you are suggesting, is Britain, alone, amends qualified items for CT, to exclude companies expensing Franchise Fees; Licence Fees (for IPR);

finance charges when made by a foreign principal proprietor/creditor; good supplied from overseas; management fees; etc.

There have been many attempts by global tax jurisdiction to clamp down on preferential invoicing (Transfer Pricing):

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl...

This is an extremely complex area of international commercial law and tax law.

Thus any attempt by the UK government to unilaterally cut across established agreements and status quo would, as I suggested, invite robust retaliatory action.

Hardly drivel....................

 

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Chris M
By mr. mischief
12th Apr 2015 20:06

Yes!!

I used to work for a large multinational and we played ridiculous games on transfer pricing.  The worldwide accountancy profession ahs been utterly useless on this issue throughout my career, which is 25 years now.  The people who set the standards are all in the pockets of the FDs, the auditors sign off any old drivel and the guys at the top of tax bodies like HMRC are busy lining up their jobs with the big 4 when they leave.

So YES just as the USA has "gone it alone" on the passport issue I want the UK to be the first country to properly and robustly tackle the transfer pricing racket.  It's not hard, the fiddles are all pretty obvious, let's just get on with it.

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By Michael C Feltham
13th Apr 2015 15:58

Well................

The draft legislation for a new Diverted Profit Tax (DPT) is already in place; and supposed to apply to Ltd Cos as from April this year.

http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/gx-ta...

That said, a long way to go, as yet, the legislation is very much still in draft form and as Deloitte clearly assert: "Regrettably, the draft legislation is complex and badly drafted."

Therefore, we can expect considerable argument and objection and revision. Perhaps the very worst aspect is instead of effective "Self Assessment" for CT, HMRC proposes to put the clock back and raise assessments.

Reference Transfer Pricing (Preferential Invoicing), this has long been a under debate and discussion between G20 and OECD.

http://www.oecd.org/ctp/beps.htm

https://www.pwc.com/en_GX/gx/tax/tax-policy-administration/beps/assets/p...

 

 

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Chris M
By mr. mischief
14th Apr 2015 06:46

We already have the people to do this!

If you work on the large MoD non-fixed price projects, you will get your overhead base closely scrutinised.  They will not hesitate to disallow large chunks of overhead allocated to the MoD part of your operations, the onus is then on you to show that your allocation of such costs was fair and equitable between the defence projects and the rest of your business.

Why is that that we find this stuff easy peasy for BAe and similar companies, yet we fail to apply the same principles and aggressive cost-base disallowances to the tax fiddlers?

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By Michael C Feltham
14th Apr 2015 14:21

A Poisoned Chalice!

Prior to the present type of non-fixed price contracts, the UK Government operated under the regime of Cost Basis Plus: major contractors bid on quasi-fixed price and then added extras.....

The furore over Ferranti et al is a useful study.

Cost Overruns and failure to meet turnkey deadlines still bedevil government procurement, generally and military procurement, particularly.

http://www.telegraph.co.uk/news/uknews/defence/10634756/Britains-biggest...

An excellent case study is the pre-Word War Two disaster of UK government's military procurement and the ITP (Instruction To Proceed) system, when Lord Nuffield dumped his aero-engine business (in which he had invested £200,000 by 1936 - today circa £13,000,000,000) and Britain lost a most valuable military asset.

(n.b. q.v. Slide Rule: the autobiography of the late Neville Shute Norway, in 1936, the MD of Airspeed)

I fear, Mr M this is far from as simple as you would like it to be!

 

 

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Chris M
By mr. mischief
14th Apr 2015 22:17

it can't be done

If you want to get anything done in life, listening to all the people who say "It can't be done!" is a bad place to start.

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By Michael C Feltham
15th Apr 2015 14:19

Anything can be achieved.......

mr. mischief wrote:

If you want to get anything done in life, listening to all the people who say "It can't be done!" is a bad place to start.

One can achieve anything; on a singular basis. One of my own personal heroes, Sir Ran Fiennes has just succeeded, at the risk

of his life, in the recent Sahara Marathon at the age of 71, following heart bypass and two heart attacks.

However when one escalates a dynamic problem to demanding solution by a group, such as a committee it becomes much harder.

If one yet further escalates the problem to a nation state, then it becomes almost insoluble: and the dreaded word "Politics" and disparate views and demands interferes.

Now, when the problem demanding solution is escalated still further to a global scale, then the "Solution" resembles the eponymous horse designed by a committee: and the final product ends up as a camel!

Me a cynic? Absolutely, yes!

Moe accurately, however, a pragmatist with far too many years of life experience................

 

 

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By Michael C Feltham
16th Apr 2015 11:11
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