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Avoidance everywhere by Simon Sweetman

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14th Apr 2009
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Simon Sweetman analyses the culture of tax avoidance in the sporting community and beyond.

Sometimes you start with something and realise it is the tip of the iceberg. I wrote about the possible tax consequences if the Indian Premier League had been held in the UK and suddenly there’s more tax in the sports pages.

First we have Arsenal director Danny Fiszman selling some of his shares in the club for £42.5 million. Danny Fiszman is resident in Switzerland, and so will pay no CGT (despite the fact that most of his business activities appear to be in the UK). That’s nothing to do with avoidance; it’s because (unlike almost everybody else) the UK only charges CGT on residents and does not charge non-residents disposing of UK located property.

Then there are complaints from the Rugby League Super League clubs that the arrangements under which they pay their imported players from Australia and New Zealand for their image rights into offshore accounts without paying tax instead of paying a wage are being closed off by HMRC. So I shall avoid the temptation to make jokes about Rugby players and intellectual property, and merely remark that it is highly unlikely that Rigby League thought of this first, since some other sports will have much more expensive tax lawyers on tap.

So what does this tell us? It tells us that the wealthy end of UK society from bankers to footballers is wholly tied into tax avoidance schemes, and that tax avoidance is a way of life. We also know that there are professional advisers out there who make a very good living out of this.

What is also clear is that all of us are going to have to pay more tax in the foreseeable future in order to pay for the rescue schemes for banks and the money being injected into the economy in an attempt to reduce the impact of the economic downturn (which has been caused by financial mismanagement in the effectively unregulated world of banking).

So as tax rates rise (as in time they must) can we expect the rich to redouble their efforts at avoidance? Or out of solidarity with the rest of us will they stop doing so, allowing all those very clever people working for tax planning departments to be redeployed to do something socially useful?

Alternatively, just in case they choose the first route rather than the second, is this time to say that high end tax avoidance is unacceptable and that it is time to write a general anti-avoidance principle into tax law and to lean increasingly hard on the tax secrecy jurisdictions? You tell me.

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By mikewhit
16th Apr 2009 11:02

Meritocracy - or Closed shop ?
We keep (or kept) hearing that the high rates of remuneration for bankers etc. were necessary to attract the top talent.

But who has researched on this - is there any evidence that paying a salary (bonus-free) of "only" £150k pa (comparable with say a city council chief exec) would attract any less talent ?

I am certain that there are very intelligent and capable people who would work for that - make them work a normal week and do a job-share if necessary too !

Normalise the work so that it becomes more a matter of running a business well rather than going for global takeovers every week.

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By Mike Bassy
15th Apr 2009 20:41

INCORRECT PREMISE
Simon continues to live in previous times.There is at least one fundamental flaw in his argument, and it is this: the average tax payer is sick to the gills of paying high taxation only to see all of the money going to super wealthy bankers. You can argue the merits or otherwise of this expenditure, but the common perception is one of a government looking after the already super rich. Meanwhile millions are losing their jobs - mothers, fathers, brothers, sisters - through no fault of their own.

I look forward to seeing Simon attempting to tell these people that they should pay even higher taxes. He may need to have his argument surgically removed.

Politicians will certainly have no option but to try to sneak tax rises through, disguised in a cloak of morality such as climate change, CO2 emissions or perhaps even war. Some will certainly succeed. However, no major initiative, such as those required to plug the enormous economic black hole will be acceptable in the foreseeable future. Taxation occurs ultimately by consent, and that consent is no longer there.

And where will he find a politician willing to put forward high tax proposals knowing that they will quickly bring an end to their parliamentary sinecure ? Economics sense shares no platform with political ambition.

The ability of the Government to govern has been seriously eroded. Everyone is questioning why they should continue to listen to any politician of any political hue. Seeing wealthy business men avoiding tax no longer generates anger . Instead, all we feel is envy. That's the real legacy of this credit crunch.

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By nickja
15th Apr 2009 18:49

Adrian,
it is indeed a case of us and them, just not the us and them you describe. The real "us" is;
1 the vast majority of the employed population who pay a proportionately higher/less financially manageable share of their income in taxation than do the significant minority;
2 the vast majority of the taxed population who do not have the means to take advantage of loopholes exploited by the significant minority; and
3 the most vulnerable members of our population, pensioners and others forced either to live in poverty or be first in line to lose their jobs.

None of these groups has any meaningful choice to, as you put it, "play along" with the system. That right goes only to "them".

I agree totally that nobody wants to pay more tax than they have to - that's human nature surely - but are you seriously suggesting that spreading the burden more equitably is not either preferable to the almost anarchic approach "they" are allowed to get away with now or what most people - we do live in a democracy after all - want?

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By Accounting WEB
15th Apr 2009 16:38

Listen to Churchill
"We contend that for a nation to try to tax itself into prosperity,
Is like a man standing in a bucket and trying to lift himself up by the handle"

It seems he might have been onto something

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By panchani
15th Apr 2009 15:57

Lower tax rates; don't raise them.
Why does everyone keep assuming that tax rates are going to rise? Increasing tax rates is a contractionary measure other than for the tax avoidance industry. Why not reduce tax rates, particularly in the corporate sector, and attract business and top people? This needs to be delivered in tandem with a long-term commitment to certainty. Recent retrospective attacks, like for instance Section 58 FA 2008, have undermined certainty in the UK tax system and is driving business and the wealthy away from our shores. Its no surprise that the petition on the Number 10 website to repeal the Section 58 legislation is attracting so much interest (http://petitions.number10.gov.uk/RepealSection58).

Tax is a tradable commodity; wealthier people and businesses have a choice where and sometimes if they pay it. The UK should make itself a desireable and certain place to pay tax. The benefits of this approach were clear to been in the Thatcher era.

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By Anonymous
15th Apr 2009 15:32

Fair Play...
I have always thought it a bit strange that non residents can 'avoid' CGT on UK assets, especially so in situations where those assets have been income producing so that UK income tax has been due by those same non-residents. Very odd.

But I think I can see where Simon was headed with this; 'money makes money'; or 'the rich get richer while the poor get poorer', perhaps?

I wish we had a truly altruistic society where we would all gladly pay our 'fair' share: but there's the rub: what is a fair share?

"Let the games begin...."


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By grecianwebb
15th Apr 2009 14:18

non-dom
Why does everyone always foregt that other countries have a right to tax too, when bashing non-doms?

Remember that we have comprehensive double tax agreements with a lot of countries and even if they do not always apply to sort out who has the right to tax what, where there is double taxation, there usually follows a foreign tax credit to make the situaiton fair.

So, suddenly taxing all non-doms would not always necessarily change the situation like most people seem to think. You would still (on most ocassions) have to give a credit for taxes paid elsewhere or allow another country to tax it rather than Blighty and so the situation is always not as crystal clear as people think.

If it were then the government would have amended the rules by now instead of always promising to do so and then trying to forget about the promise when they start to realise the complexity of it all.

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By Anonymous
15th Apr 2009 13:55

Us and Them
It's a question of Us and Them, isn't it? And which side you see yourself on. Tax avoiders and offshore regimes are obviously "Them", and of course we are all on the side of HMRC in trying to get in the money for "Us". Except, that is, for when I get a tax demand and HMRC becomes "Them".

It seems to be this "Us and Them" thing that leads people to get so hot under the collar about tax. It ought to be a matter of identifying what the needs of public expenditure are and then having a rational debate about the most effective way of raising the funds. That debate is to be conducted by our representatives in Parliament. Let's not forget that taxation consists essentially of taking away people's private property under threat. It therefore has to be something that is set out in legislation explicitly and with a very high degree of certainty. It is purely a legal construct, and has nothing to do with moral issues such as responsibilities and paying your "fair share". Fairness has its place, but mainly for reasons of effectiveness - if people don't think the system is fair, they won't play along.

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By carnmores
15th Apr 2009 13:55

CGT on non residents in budget
Arsenal is not unusual, but all gains are generated fundamentally from the football sides sucess so it would be fairer, especially given that he is a director that DF should pay CGT - he already has an IT break presumably

comments?

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By nickja
15th Apr 2009 13:24

It staggers me that.....
....in the face of formidable evidence, anyone can try to pretend that governments are primarily responsible for our economic woes. They may not have been as clever as we all would have liked but they weren't the ones gambling with our savings and pensions.

Equally, what planet are people on if they don't see that the closure of unintentional but exploitable loopholes that cost the rest of our population billions in extra taxation is a legitimate activity for government to pursue.

As for non-doms, why are we subsidising so many who enjoy a vast range of public services, particularly when we don't have the available funds.

Let's level the playing field so that everyone who lives in this country is subject to the same tax rules and no-one can avoid their responsibilities simply because they have the means to employ clever professionals whose principal contribution is to locate and exploit arcane loopholes - to the detriment of the vast majority. And don't try to pretend that that's anything other than what the vast majority of the electorate - of all political complexions - wants.

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By Jon Stow
14th Apr 2009 20:46

Lost...
I am sorry but I do not follow this. The wealthy and high-earners (and there is a distinction) can afford the travel and the air fares to pay less tax. I hate artificial schemes, but being non-resident is hardly tax avoidance. As Andrew suggests, why would anyone volunteer to pay tax? Like most I have always dutifully paid my share but if on my holidays I can buy a new camera within my duty-free allowance, why should I not do so rather than pay VAT or other duties on a purchase at home?

Sports stars have a short period of high income and might be expected to employ specialist advisers to help them through the tax maze to give them a long and comfortable retirement. Careful planning is to be expected but it does not tell us that tax avoidance is a way of life; that is such a sweeping statement which needs more support than is given in your article.

Surely a general anti-voidance rule would amount to repression if it were enforceable, which in practice it wouldn’t be.

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By AnonymousUser
14th Apr 2009 16:41

I have no
knowledge of Frizman other than what I read here but I fail to see how his activities represent avoidance. The government chooses, and always has so chosen, not to tax capital gains enjoyed in such circumstances. Or are you suggesting that Frizman is an avoider because he did not volunatrily assume UK residence before making the disposal ? I may have misunderstood your point but would have expected you to be capable of presenting a better argument than seems to be the case here.

By coincidence, was it not Arsenal who started the image rights angle for sportsmen with Berkhamp ?

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By listerramjet
14th Apr 2009 15:04

I guess
those in business for themselves have a very tempting means of evading tax (not sure what the politically correct term is for this?), and the wealthy have entirely legal schemes if they arrange their affairs correctly. Its us poor employees that have to bear the burden of Gordon's welly wanging.

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By markfd
14th Apr 2009 13:47

Closed Economy
You appear to be wanting a closed economy where nobody can leave and your tax bill is determined by Ms Harman's people's court. The downturn is caused as much by economic mismanagement by the government than foolish banks, and it is the government that hopes taxpayers will be hoodwinked into thinking a few rich people can pick up the tab.

Unless you intend to close the borders, you can't stop wealthy people and a large number of businesses voting with their feet.

Yes to attacks on banking secrecy to stop EVASION. Anything else will just be counter productive.

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