TaxBlog

There’s an interesting article on Stuff about the IRD investigating tax avoidance and evasion arrangements of the righ:

Tax evasion is like pornography, says Julie Segedin, tax manager at Beattie Rickman. “You may not be able to define it very easily, but you know when you see it.”

And just like pornography, it’s almost impossible to find people who will talk openly about using it.

But the wealthy, who are under suspicion of doing their utmost to pay as little tax as they can, are not finding things as easy as they once did, tax experts say.

The IRD’s high wealth individuals unit, which has netted over $36 million in avoided taxes, has powered up and is in the process of writing to 105 New Zealanders with over $50 million in assets, telling them they are being closely watched.

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A prominent Fiji businessman and former Lord Mayor of the capital city has gone on trial in the Suva magistrate’s court charged with tax evasion.

Dhansukh Lal Bhika has been charged with ten counts of tax evasion amounting to 300-thousand US dollars in returns filed with the Fiji Revenue and Customs Authority in July 2003.

The prosecution alleges that Bhika deliberately omitted certain income from the tax returns of his company, Suncourt Hardware, with the intention of evading tax liabilities.

The leader of the state team which audited the company’s accounts, Dora Traill, said, as managing director, Bhika should be held responsible for the record keeping system maintained by the company.

Bhika is alleged to have benefited by an amount of 300-thousand dollars by his actions.

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Multinational companies are facing an increasingly complex and adversarial transfer pricing environment, according to a recent survey of more than 30 countries’ revenue authorities conducted by Ernst & Young.

Key findings from the survey include:

- A ‘new wave’ of countries including China, Colombia, Israel and Turkey are entering the transfer pricing enforcement field, while the ‘old guard’ – countries such as Canada, New Zealand and the UK with established transfer pricing regimes – are stepping up resources, levels of sophistication and focus in their transfer pricing efforts.

- Three significant trends emerged about tax authorities around the world that are important for multinationals to consider:
- They are more knowledgeable and attentive
- They view global tax positions, so corporate activity in one country may have implications throughout the organisation
- Transfer pricing implementation and penalties vary, but all countries are becoming more intensely focused on transfer pricing policy and compliance.

In New Zealand there continues to be a lot of audit activity focusing on loss-making companies, management service fees, royalties, interest rates, guarantee fees and limited risk conversions, says Matthew Andrew, Tax Director with Ernst & Young in New Zealand.

The full report can be downloaded from Ernst & Young’s website: www.ey.com/nz

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Finance Minister Michael Cullen has told a foreign business audience the business tax review is likely to produce a mix of lower corporate rates and tax credits.

In a speech aimed at enticing Singaporean investment into New Zealand, Dr Cullen underlined the Government was looking to encourage greater investment in innovation and exporting.

“A current review of business tax rules is likely to produce an attractive mix of a lower corporate tax rate and tax credits, particularly helping those businesses focused on tackling overseas markets,” Dr Cullen said in speech notes.

Dr Cullen has indicated cuts to the corporate tax rate are likely to have a flow on effect to personal tax rates.

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What if the largest property owner in your county suddenly decided he wasn’t going to pay property taxes anymore? And, worse, there wasn’t a damn thing you could do about it.

Some 700 counties scattered across rural America now find themselves in precisely this position. And the deadbeat property owner is none other than the U.S. government, the owner of some 90 million acres of timberland–holdings that account for more than half the entire land base in many counties.

The history here is straightforward. Since 1906, counties holding federal forestlands have received a share of the revenue generated by various management-related activities, including timber harvesting. While technically not a property tax, revenue sharing placated the Western solons who feared nationalizing public domain lands would make community formation impossible.

But the program has slowly ground to a halt over the last 20 years as one administration after another lost its enthusiasm for harvesting federally owned timber. West of the Cascades in Oregon and Washington, folks blame the Endangered Species Act, lawyers and the northern spotted owl, in that order. Down South, it’s red-cockaded woodpeckers. In the Midwest, it’s Indiana bats.

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The Centre for Independent Studies raises valid issues say Chartered Accountants

The Institute of Chartered Accountants says that it supports the broad-based low rate approach for the tax system advocated in the “How to fix a leaky tax system” document released by the Centre for Independent Studies today.

“While we may not agree on all points of the report, the Institute agrees that the interests of all New Zealanders are best served by a tax system with a structure that is as low and flat as possible.”

“New Zealand’s tax system has moved away from this in recent years and the future is not looking too promising either,” tax director Craig Macalister said.

“A tax system should be simple in its application, certain in outcomes and perceived as broadly fair. It should also be designed to minimise distortions to the economic behaviour of taxpayers. This means a tax system that taxes business as it finds it – rather than creating incentives for business to change itself to adapt to the tax system.”

“While there will always be ideological debates about the level of taxes people pay, a complex system ultimately benefits few at the expense of all.”

“Even those responsible for administering the tax system are warning about its fragility.”

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Richard Murphy posts claims from business that it is paying to much tax. These claims apply to NZ as well as the UK. Quoting him and changing the UK to NZ:

1) NZ business pays too much tax;
2) NZ is out of line on tax rates;
3) If only tax was cut NZ business would be more innovative;
4) Then we’d all be better off.

His response is:

We support competition, but think business should compete on the basis of innovation and the quality and price competitiveness of its products, rather than continually looking for state subsidy – direct and indirect – to create a “competitive” environment. Tax competition has forced many developing countries to undermine their revenue bases in their efforts to attract inward investment with no benefit to anyone other than shareholders overseas.

It is time the issue of tax competition was examined afresh since it is quite clear business will not be happy until we reach the stage where it pays no tax.

Personally I don’t know of any business leader or executive that is proposing a zero tax on capital system. This will never happen in any democratic state anyway because it is unlikely that the population will elect a government with such policies.

Secondly, tax competition is a reality, and unless the EU has a standardised tax system there will always be tax competition. I’m no expert on UK or EU law but the recently announced decision on Cadbury Schweppes shows that tax competition is a real threat to developed countries such as the UK. So the question then is – how should an EU member state such as the UK respond to such an environment. Either by competing by lowering the headline tax rate, or by providing more services in return for the higher tax rate.

Either way one thing seems obvious – tax competition make governments more accountable, not less. That is one thing NZ could have more of.

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A former Inland Revenue Department (IRD) employee with a “fragile mental state” pleaded guilty to three charges of fraud in the Wellington District Court yesterday.

Vernon Duckmanton had been charged with 125 charges of fraud but defence lawyer Val Nisbet and crown prosecutor Grant Burston agreed to a revised plea of guilty on three representative charges.

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One of the topics I find fascinating is the EU situation.

Each EU member country has the right to tax, but is still subject to the EU’s jurisdiction.

This story shows how this applies in tax.

Europe’s highest court ruled that countries could not go after profits earned by subsidiaries in other European countries as long as the businesses were not “artificial� arrangements to avoid paying taxes.

While potentially painful for high-tax countries like Germany, France and Italy, lawyers said the landmark decision could help promote European integration by making cross-border expansion more attractive.

In a case brought by Cadbury Schweppes, the soft-drink and candy maker, the European Court of Justice in Luxembourg said that national laws restricting the ability of a company to set up a foreign subsidiary in a lower-tax country were justified only when those operations were “wholly artificial arrangements.�

The court said the burden of proof would be on the company to show that it had real operations in the low-tax country, like physical offices, employees and equipment.

Cadbury had challenged the British government’s 1996 tax bill for £8.6 million, or $16.1 million, on its subsidiaries in Ireland, which is one of the lowest-tax countries in Europe. A British court referred the case to the Luxembourg judges.

In theory, the ruling will allow companies doing business across Europe’s borders to establish foreign subsidiaries in low-tax areas. But in practice, it will be up to national courts to decide, case by case, whether companies are abusing European law, the court ruled.

“This case shows the need to coordinate better fiscal policies to avoid double taxation,� said Maria Assimakopoulou, the European Commission’s spokeswoman on taxation.

But any such move has been opposed by Britain, Denmark and others arguing that national governments’ control over taxation should be sacrosanct.

What’s interesting is that the EU is promoting tax competition between its’ member states. Where a country such as Ireland can attract the business of multinationals, they will transfer price as much of their income to that country as they can. Therefore leaving the other member states out of pocket, forcing them to reduce their tax rates. I predicted this would happen in Germany, they cannot survive with high tax rates in the current EU environment.
Therefore what this mean is that there will be a race to the bottom. This will be more so the poorer EU member countries. They will set their tax rates as low as they can to attract the business of the multinationals. These poorer countries can do this because they don’t have the left redistributionist welfare policies of high tax countries such as Germany.

So this leaves the likes of Germany no option but to cut their welfare payments, and tax rate to compete.

A final point. This isn’t just transfer pricing, but also manufacturing decisions we are talking about here. If manufacturing can be shifted to lower tax states, then this will also have the same effect, less tax for the wealthy states (wages taxes ect).

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There is a great article on why legal blogging is becoming popular, which is reproduced on the taxprof Blof:
Some parts which I thought were good:

The growing respect for blogging among legal professionals stems in part from the medium’s tendency to resist the worst excesses of the traditional forms of legal writing and publication. Many legal documents and most traditional law review articles can be ponderous, with assertions over-wrought, arguments over-made, principles over-cited and everything over-written. The blog medium fosters and rewards succinct expression. For legal writers and legal readers, it is liberating and refreshing to have thought-provoking ideas about the law expressed in only a few paragraphs or even a few sentences.

Valuably, blogs enable lawyers and law professors to reach an extensive and extraordinarily diverse audience, and to interact with many new people as “cyber-peers.” Blogs facilitate exposure to, and scrutiny by, a national and international readership. A blog’s audience can include not only judges and practitioners at all levels and in many jurisdictions, but also policymakers, academics from many disciplines and journalists of all stripes. In addition, blogs are accessible to non-lawyers interested in legal issues and, perhaps most valuably, the real people whose lives are affected by the legal policies and doctrines that a blog may discuss. Through comments, links and other means, blogs foster continuous interactions with sophisticated (and unsophisticated) readers that can provide for a distinct and valuable form of peer review.

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