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May 2009

From the annals of Ritchiedom

if wealth is measured in any way that does not equate to totting up the amount Luke Johnson has in his bank account then more equal societies (created in part by redistribution) are wealthier on every measure anyone can think of.

Seriously?

Gini numbers show the level of inequality in a society. A lower Gini thus means, by Ritchie\’s argument, that a country with such a lower number is wealthier than one with a higher one.

Hmm.

UK, 35.97.

Laos, 34.65.

Laos, wealthier than the UK?

Algeria, 35.3? Vietnam 34.4? Kazakhstan? Armenia? Albania?

Moldova? 33.22? Bosnia?

Well, that\’s that little idea shot to pieces then, isn\’t it. For there just ain\’t any rational way to claim that those countries are wealthier in any manner than the UK, despite being more equal.

Sorry, but there just ain\’t.

Tax incidence, tax incidence!

I see an incident of Ritchie agreeing with the tax incidence argument.

Microsoft has complained that Obama’s attack on tax havens will challenge its competitiveness in global markets.

It is a monopolist. How could it lose competitiveness as a result of tax change? 

As this analysis shows – the reality is that it is simply very good at tax avoidance: as a result it shifts the tax burden from those most able to pay in society (like Bill Gates) to these least able to pay.

See? Coporate taxes aren\’t paid by the company. They fall on people, not companies.

Strange how he\’s never consistent in this argument though…..

MPs, second homes and CGT

As Ritchie says:

What none of them could seem to get was the fact that the last three years of occuptation of a property which has at any time been your main residence are a deemed period of capital gains tax free occupation.

But of course, as Ritchie also insists, making use of allowances specifically introduced into law by Parliament is abusing the tax system.

Isn\’t it?

Stunner!

For the net we work on, the digital connections our government seeks to spread as a universal right, the keyboards in our homes, are blights as well as boons.

Guardian journalist discovers that there are trade offs.

Oh bugger

Even more fundamentally, we should be able to teach students that imports, not exports, are the purpose of trade. That is, what a country gains from trade is the ability to import what it wants. Exports are not an objective in and of themselves: the need to export is a burden that the country must bear because its import suppliers are crass enough to demand payment.

Paul Krugman.

Damn. I\’ve been known to make this point often enough myself. But I was sadly deluded enough to think that I was being vaguely original in doing so.

Ho hum.

On womanhood

switch places with one of us for a day. I’ll even be generous and let you switch with a Western woman, instead of one of the many down-trodden of the Third World. Then you’ll discover just how lovely it is (what with our living longer and not topping ourselves and not providing for the family) to do things like menstruate, give birth, endure the menopause, have every bad mood or irritable moment ascribed to PMT, be deliberately wound up and then called ’shrill,’ represent irrationality personified, and suffer the indignity of losing one’s husband in middle age to a younger model.

Jeebus. I didn\’t realise that all that was likely to happen on just one day.

Umm, India dear?

Breastfeeding is a very lovely thing, but if you’re a J cup at the time (no, not me; a friend. I swear) and in public, it takes on a rather “it’s showtime” aspect. Yes, I know it’s society’s fault for seeing breasts as sex things rather than food things, but that doesn’t make it any more comfortable for the woman in the cafe with the bosoms larger than her head, frankly.

Breasts are a sex thing, not a food thing.

Our various ape and monkey cousins all lactate just as we do but they don\’t have breasts. Small breasts lactate just like large ones do. Tits are entirely about sex, not food.

Willy Hutton

What is needed urgently is more bank capacity. We need to create a network of public/private banks to support industrial and infrastructure investment and we need a wholesale transformation in the short-term, risk-averse way in which British banks have treated manufacturing companies for more than a century.

Amazing.

Immediately after he\’s peddled the rumour that the German banking system is bust he then insists that we should have a banking system like that of, umm, Germany.

Look, manufacturing just isn\’t all that important a sector of our economy. Well under 20%. Sure, there might be doom and gloom for the sector as there was in 1930, but because manufacturing is a much smaller part of our economy than it was in 1930 this has a much smaller effect on the total economy than it did then.

On that 50 p tax rate

Mr Hands, who is chairman of Terra Firma Capital Partners, has moved to Guernsey in recent weeks, according to people close to him. His decision to relocate makes him the most high-profile City executive to quit Britain over the new tax rules amid growing fears of an exodus of talent. A friend of Mr Hands said last night: "Guy has gone offshore to Guernsey in view of the new tax regime.

"With two thirds of his income, including national insurance, now going to the taxman, he did not have much choice."

It doesn\’t take too many such people moving to reduce the take from the higher rate to nothing. Or even a negative number.

I\’ll be careful what I say here

Just like the newspaper has been for fear of libel.

But this looks like:

The five MPs, who represent the political wing of the IRA, have not even taken up their Parliamentary seats and yet they have rented three London properties from the same family at rates well above the market norm.

The party\’s two best-known figures, Gerry Adams, the party leader, and Martin McGuinness, Northern Ireland\’s deputy first minister, jointly claimed expenses of £3,600 a month to rent a shared two-bedroom flat in north London. A local estate agent, who knows the properties, said a fair monthly rent for the flat would be £1,400.

Well, in my opinion it looks like laundering, doesn\’t it?

Dear Lord Above

They did what?

Under HMRC rules, expenses are taxed unless they are “wholly, exclusively and necessarily” incurred in the course of employment. MPs voted themselves a special tax break in the Income Tax Act 2003, which means they are exempt.

They deliberately excluded themselves from the tax system which they impose upon everyone else?

Grrr…..

The Michael White defence

Allegra Stratton makes the point on GU today. The trouble is, so far as I can tell, the Telegraph isn\’t telling us about the good guys. Its list of errant cabinet ministers – 14 in all – includes three current non-cabinet members (Prescott, Beckett and Caroline Flint).

Does that mean that half the Brown cabinet is so far beyond reproach that not even the Torygraph can concoct a flimsy case against them, as it did against several named yesterday, Brown probably included (says me).

Only half the Cabinet are lying, cheating spivs.

 

So that\’s all right then.

Country by country reporting

Country by country reporting is being held up as the solution to so many international tax woes. But could someone please tell me quite how it does so?

Tax should be paid where the economic substance of the activity takes place. That\’s the mantra isn\’t it?

It\’s just that I\’m not really sure what that means.

Take for example this little international business I know about. I\’ve changed the country names, the product name and the margins but the substance of the following is true.

OK, first purchase in Tajikistan some low grade europium oxide. Purchase at $1,000 per kg.

Ship it to Warsaw where it is upgraded to high grade europium oxide. This costs $1,000 per kg raising the value to $2,000 per kg.

Then ship it to Canada where it sells for $3,000 per kg.

Now, yes, I can see that the whole process creates value of $2,000 per kg. But what I find very difficult to understand is how we\’re going to allocate that over the different places.

For there\’s a fourth location involved as well. Tunisia. Where resides the information about how to put this all together. The intellectual rights if you wish.

Just about no one other than the man in Tunis knows how to do this. They don\’t know where to get the low grade oxide. They don\’t know where to get it refined. They don\’t know who in Canada is willing to pay for it.

Quite literally (put it this way, the Canadian factory hasn\’t asked for a competitive bid for europium oxide for a decade, let alone received any unasked for approaches) no one else knows how to put this process together.

OK, so where is the economic substance of this series of transactions? I can see that the original purchase gets taxed in Tajikistan. I\’m not sure at all about the $1,000 on the upgrade in Warsaw. For that wouldn\’t happen at all without the involvement of Tunis, so surely some of that value should be allocated there?

And the next $1,000. That\’s not value added in Canada, is it? Or Warsaw? So does it get taxed in Tunis? The place that created this rise in value?

Or does it go entirely the other way around? $1,000 in Tajikistan, $1,000 in Warsaw and $1,000 in Canada? But then what of the value added by Tunis? Where, given the proprietary nature of the knowledge involved in all of this, arguably the real economic substance is taking place.

Note that that there is nothing taking place "offshore". No special structures, no hiding anything. It\’s just that I cannot see any hard and fast rules about where the value is added, where the economic substance resides.

So I\’m not sure what benefit there is to country by country reporting.

OK, so this might be a strange example but it\’s one that I know of, a real world example.

Where should this be taxed? What hard and fast rules can we use to decide amongst Tajikistan, Warsaw, Canada and Tunis?

Anyone?