Tag Archives: tax avoidance

Dominica: destination of choice

Dominica: the destination of choice for many Golden Geese. So says a recent BBC online news article.

Surely not? A quick check of the CIA Factbook will show it is an island 751 square kilometers in area, with a population of 73,449. I ask myself, ‘but would I want to live there?’

But then I imagined my co-author David’s response ringing in my ears. ‘Because of all the islands in the Caribbean, its price for selling a passport is still the lowest. You can buy citizenship there for around $100,000 dollars, after being interviewed by a government committee. And who mentioned anything about living there?’

‘Remember it’s only a passport … merely a travel document. Dominica is a member of the Commonwealth, and so passport holders have special privileges in the UK. They can also travel to around 50 countries without a visa. It’s estimated that some 3000 Golden Geese have already made the flight there.’

Enough said.

Tax Arbitrage

Last evening I was talking on Skype to my good friend David Lesperance, the co-author of our up-coming book, Flight of the Golden Geese. Out of the blue he announced that a significant part of his tax business was helping Canadians transfer to the UK, while at the same time he was facilitating the move of Brits to Canada. At first this sounded crazy to me. Surely one country had to be more tax friendly than the other, and the tax-flight traffic would be all one way. Not so. He explained the phenomenon in terms of differences in tax arbitrage between the two countries.

The Brits were wealthy, and shall we say of a more advanced age. They were seeking permanent tax domicile in Canada, a country that has no Estate Tax – that’s Death Duties in the UK. As Canadian domiciles, when they died their assets and property would be handed over lock, stock and barrel to the named beneficiaries in their wills. If they had stayed in the UK the state would have taken a huge slice (40% of everything over £325,000).

Meanwhile the Canadians were seeking non-dom status in the UK, which meant they would only pay tax on income earned in the UK, but not on capital brought onshore. David once stayed in England for a while, and with no business here, he paid no income tax. Of course he still had to pay to live here, which brought a decent sum into the economy.

The likes of IMF Boss, Christine Lagarde, and others hint at ‘fair taxation’ being necessary to maintain a stable economy, and that states should not set tax rates detrimental to others. This is code for standardizing global taxation … a non-starter. In such standardization would the UK accept the end to Death Duties? Of course not. It would insist on Canada imposing 40%. As for non-dom status, the US would insist that their system of tax based on citizenship be imposed everywhere. At present only three countries use this system … three bastions of democracy: USA, Eritrea and North Korea. The result of standardization would be each tax moving to the highest rate in the world. Hey ho! It won’t happen. Haven’t these tax people heard of the prisoner’s dilemma?

Biblical Tax Collectors

David Lesperance and I need to get a move on with publishing The Flight of the Golden Geese. Many of the predictions in the book are coming to pass even before it sees the light of day.

One particular prediction is already happening in the UK. We say that the popular political rhetoric of squeezing the rich ‘until the pips squeak’ is total bunkum. There simply aren’t enough wealthy people around. Taxing them at 100%, or even confiscation, would not generate sufficient funds to cover the waste of profligate politicians. The target for tax collectors has always been the hard working middle classes and upper working classes. Our prediction is that the situation will get even more critical when the mobile rich, the Golden Geese, fly away from increasing tax demands, leaving those suckers with an even bigger tax bill.

Today in the UK, Her Majesty’s Revenue and Customs (HMRC) are experimenting with bully-boy letters sent to a thousand higher rate tax payers demanding to know why their self assessments require the payment of less tax than persons with similar earning profiles. No checking if the assessments are valid and the avoidance of tax is legitimate. A threatening letter was sent to an elderly widow who had made a large charitable donation, thereby legally reducing her liability.

By definition roughly half of tax payers in any profile will be paying less than average. People will end up paying more than they need just for the taxmen to go away. Over the last year the HMRC has been very successful in intimidating more money out of people with this ‘guilty until proven innocent’ approach. Soon we can expect to see these threatening letters rolled out across the whole country.

The HMRC is behaving like their counterparts in the Bible, and like in those times, tax-collectors will become pariahs in society.

Contract signed

David and I have finally signed the contract for Flight of the Golden Geese with Oyster Point Press. We expect the book to be available around September. Between now and then we have the job of getting the marketing started … informing all our contacts in the press and media in order to maximise the impact of the launch. I would be grateful to all the readers of this blog for any help in this endeavour. Please ask any of your contacts in the press and media who would like to know more about the book to send me a message on the Contact page of this website, which will guarantee they reach me.

New Barbarians in the Home Office

It seems that mandarins in the UK Home Office have been reading my New Barbarian Manifesto.

At present non-EU nationals who invest £1 million, £5 million and £10 million in government bonds can apply for permanent residency in the UK after five, three and two years respectively.

Now someone in the Migration Advisory Committee (MAC) has proposed a sealed bid auction of around 100 visas annually, minimum bid £2.5 million, £2 million of which goes straight into government coffers.

Critics say the British Public won’t like this. I beg to differ. The British public don’t want dole queue immigrants. They’d be delighted to welcome the rich who spend money and thus employ people, and pay taxes. In the New Barbarian Manifesto I said that the UK “should drag them of the planes if necessary”. It looks like someone in MAC is thinking along the same lines.

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A three-letter word ending in X

My friends say I have a one-track mind. I’m always thinking about a three-letter word ending in X. … TAX.

It seems I’m not the only one. For yesterday in the House of Commons MP Ben Gummer stated a fact that has always irritated me. His bone of contention was National Insurance. For non-Brits I should explain that British subjects who earn more that £149 per week has to pay 12 per cent or more of their earnings on a so-called contributions based scheme that supposedly pays for various sickness and unemployment benefits and pensions. Gummer says it is a stealth tax masquerading as a social good.

National Insurance is a sanctimonious euphemism, it is a tax mechanism for redistributing wealth. The state should come clean and admit that it is nothing less than an ‘Additional Income Tax’.

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Learning the lessons of the Laffer Curve

During the late 1970s the U.K.’s top income tax rates were over 80%, and yet the top 5% of income taxpayers contributed just 24% of the total, whereas nowadays at much lower tax rates this group pays around 43% of the total; the top 10% paid 57.6% in 2011/12. The top 1% paid 11% of the total in the 70s; and 27.7% in 2011/12 (up from 21.3% in 1999/2000) – raising £44 billion, more than raised from companies. Apart from showing that the wealthy pay a disproportionate amount of taxes, the figures clearly imply that lower tax rates actually increase tax revenues. This counter-intuitive observation seems to support the Laffer Curve theory, which sees two counteracting effects at play in the raising of tax revenue: that of ‘arithmetic’ accumulation and the ‘economic’ consequences. The arithmetic effect is straightforward: revenue collected is the tax rate multiplied by tax-base (the taxable amount available) accumulated across the various bands. The economic effect is the recognition that the tax rates imposed will have a dampening effect on the tax-base – a higher tax rate will trigger tax evasion, more effort in avoidance, less incentive to earn, more time spent at leisure, and some tax-payers permanently leaving the jurisdiction.

At the extreme a 100% tax would mean no incentive at all; no one would bother to work since all the fruits of their labour would all be taken off them. Hence the economic effect of a total tax would mean an empty tax-base, and a consequential tax take of zero. Charging tax at 0% would also bring in nothing. Hence there must be an optimum tax level that maximizes the tax take balancing these two effects. But what level? This is an impossibly complicated calculation that would also have to take into account special circumstances (like paying for a war, or subsiding the unearned bonuses of the banking sector), or the availability of offshore tax havens, or changes in the overall economic climate etc. Nevertheless it seems clear that punitive tax levels actually drive down revenue.

Why is it that the taxman focuses on the arithmetic consequences, but has no conception of economic ones? Does he believe in a kind of Newton’s Law of Taxation: where to every action (that is tax) there is an equal and opposite reaction (namely everybody pays up in full)? According to their simplistic arithmetic logic, tax creates a revenue stream, and a higher tax makes for a larger stream. Not in Laffer’s non-linear world of consequences. The only law the Revenue should consider is that of Diminishing Returns. Taxing is disturbing. There is an uncertainty principle at play here. The act of taxing disturbs and changes the attitude of both the persons being taxed, and those doing the taxing. Those profiting from taxes get an appetite for it, and like Oliver Twist will ask for more. However, keep increasing tax levels, and the tax-base collapses. And when the tax-base collapses, so does the economy, and ultimately so does the country. Death by taxes – a lesson that every socialist state eventually learns. One that President Hollande’s France will learn very soon. The rate of tax needn’t even be that high – the mere introduction of a new tax is interpreted as a statement of intent, a signal of more to come.

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