Ragging on Ritchie

Ritchie repeats an old error (Surprise!)

In other words, and allowing for inevitable rounding in all estimates of this sort and the fact that these ratios are bound to change a little from year to year, every single pension payment made in 2007/08, totalling £117.6 billion in all (if lump sums are ignored) was made at eventual direct cost to the UK government, even if not paid directly by it. The private sector did not, in effect, bear any of the burden in that year of paying pensions to members of private sector pension funds. Those private pensions were, in effect, paid entirely out of the state subsidies that the pension industry or those making pension contributions (whether as employer or as employee) received, directly or indirectly.

He is, of course, comparing the tax relief given this year to people saving for their pensions with the pensions paid out in this year.

Which is a truly cretinous thing to do.

Pensions, as you will have noticed, take up to 40 years to mature. And they can then last for 20-30 years more.

So, the amount being paid out in pensions this year is a reflection not of the tax relief accorded to pensions savings this year, but of the tax reliefs that have been given to pensions savings over the past 70 years or so.

Good luck making that calculation by the way. For what you would need to do is add up the value of all such reliefs and consider that to be a capital sum.

Then you regard the current payments as being the income from that capital sum. Probably best viewed as an annuity (ie, it eats its capital). And there\’s a problem as well in that you\’d have to differentiate between pensions which have matured, are paying out, and those that have not yet.

And one very important point indeed. You would not adjust for inflation. For trying to beat inflation is one of the purposes of saving in bonds, shares, property, rather than just sticking the cash under the mattress.

If the current income is more than about 5% (roughly current annuity rates) of the tax relief (recall, not inflation adjusted) granted in the past, and do recall we can only be talking about those pensions which have already matured (ie, the tax relief given to those pensions which have already matured), then it atually looks like quite a good deal.

Ritchie says private pensions paid out £41 billion in a year. Meaning that for this to be a bad deal there must have been £800 billion of cumulative tax reliefs over the years (not inflation adjusted!) to those pensions which are currently in payment.

Which, given that total private pension plan assets are around £1,200 billion (old number, I know) seems most unlikely.

In other words, this is Ritchiebollocks.

Most amusing

\”In a secret hearing this week Fred Goodwin has obtained a superinjunction preventing him being identified as a banker,\” said Hemming, the MP for Birmingham Yardley.

Partly it\’s amusing that someone would go to such expense to avoid being identified as a banker.

But there\’s a deeper little giggle there as well. For of course he\’s not a banker, not originally. He\’s a chartered accountant.

Which rather shows the perils of having the banking system run by such. Prem Sikka and Richard Murphy should take note: having done your articles does not make you a good banker.

Finally, after several years of banging on about it, Ritchie gives in and agrees

As the analysis below illustrates – and Murphy accepts – his methodology in relation to corporate tax avoidance produces an estimate which inevitably includes an element of ‘legitimate’ tax planning.

Ever since his first report came out I have been shouting that he over estimates corporation tax avoidance/evasion/abuse because he doesn\’t take account of the just and righteous use of the allowances which Parliament specifically puts into the law.

Now when he\’s talking to people who actually know about tax he accepts the point.

I\’ll not be hanging about for the \”Of course, Worstall was right\” post though.

I think I might have to become an incoherent, illogical, left winger you know

Grant Search Results

Your search for all grants awarded to Richard Murphyunder all programmes returned the following results. Please be aware that a red programme name indicates that the programme is no longer running.

\"Sort Organisation \"Sort
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Richard Murphy Power and Responsibility £70,000 Jul 2010 24 months
Personal award for defining a new role for tax in a post-recession UK
www.taxresearch.org.uk/blog

Crippled Jeebus C on a crutch.

He also gets cash from the TUC, indirectly from the Norwegian Government, the Network for Social Change, PCS, Christian Aid, Greenpeace, Action Aid Sweden, Ibis Denmark, Manchester University….and I\’m sure I\’ve seen something about the Ford Foundation out there as well.

He\’s got to be on £50k a year at the very least. Substantially more would seem a reasonable guess. Wouldn\’t be at all surprised at £100k.

So how do I get on the gravy train of making a fortune for producing illogical wibble? For other than direct pay for freelance pieces, my income from the Vast Right Wing Conspiracy is precisely £0.

Hold a fundraiser? Sell out? Suck up to someone?

Anyone willing to pay for my services in actually reading and pointing out the flaws in Ritchie\’s output?

Jeeebus……

Ritchie on BBC Guernsey

…and you’ll here a typical interview by a BBC employee in the Channel Islands – they’re always, without exception, on the side of the tax abuser, excusing that abuse is legiitmniate use of loopholes and so on. It’s not questioning – they put it as fact.

Hmm.

What does \”legitmate\” mean?

le·git·i·mate

(l\"\"-j\"\"t\"\"\"\"-m\"\"t)adj.

1. Being in compliance with the law; lawful: a legitimate business.

As no one at all is suggesting that these companies are breaking the law then yes, it is a statement of fact that this is a legitimate use of loopholes.
It\’s entirely true that R. Murphy thinks that the law should be different, but as it is, this is lawful and thus legitimate. For what is lawful and what is not lawful is not decided by what R. Murphy thinks it should be. Yet, thankfully.

In which Joseph Stiglitz mightily pisses off Ritchie

On the economic miracle which is Mauritius, our Nobel Laureate has this to say:

Suppose someone were to describe a small country that provided free education through university for all of its citizens, transport for school children and free healthcare – including heart surgery – for all. You might suspect that such a country is either phenomenally rich or on the fast track to fiscal crisis.

Well, no, not really. Education and health care are services. Where labour is cheap (which it is in a poorish country of course) it\’s actually eaiser to provide these things than it is in a richer country where labour is more expensive.

But leave that aside, how has this wondrous development been possible?

As if to prove Meade wrong, the Mauritians have increased per capita income from less than $400 around the time of independence to more than $6,700 today. The country has progressed from the sugar-based monoculture of 50 years ago to a diversified economy that includes tourism, finance, textiles, and, if current plans bear fruit, advanced technology.

Finance, eh?

Yup, Mauritius is on Ritchie\’s little list of tax havens which steal money from other places. Specifically, it\’s where a lot of Indian tax avoidance is done.

So, it seems that being a tax haven is indeed the route to development then.

Why does Ritchie want to impoverish the Mauritians?

Yes, it\’s Ritchie again

To summarise my counter arguments they are:

1) Of course multinationals pay most tax, but there are numerous reasons for this. These include:

a) The UK has the largest financial market in Europe clustering financial, oil, mining and other companies in a way that no other centre in Europe does. It probably has more multinational companies per head of population than anywhere else in the wold. Of course they make a disproportionate contribution.

b) The proportion of profits within the UK economy has risen over recent years. I show this here. Almost all of this will relate t multinational corporations – so unsurprisingly they are paying more tax. But this may not be a cause for celebration – remember this means that labour is getting a smaller share and that means the wealth disparities in the UK have risen. I don’t consider that good news.

The two points militate against each other.

OK, so we\’ve got lots of multinationals based (domiciled that is) here and quoted on our Stock Exchange and so on. They make pots of money overseas and the UK Treasury gets some of that pots of money in tax.

OK.

However, the rise in profits as a share of the economy is measured as a rise in the share of profits in GDP. That\’s, as we all know, Gross Domestic Product. Note that profits made by multinationals overseas are not domestic and thus (unless GDP accounting is even more screwed up than I thought it was) included in GDP. They are in GNI…..*

That oppression is not necessarily good for the UK economy. UK companies employ more people in all likelihood – and that generates more tax and more added value.

Tee hee.

Employing more labour is a cost. Thus if you employ more labour to get to a particular production level or output, you have added less value, not more.

Employing one bloke on £20,000 to produce £100,000 of output or emplying three blokes each on £20,000 to provide £100,000 of output. Which adds more value (all other things being equal, of course)?

2) Let’s be clear about the second point – that large companies pay lower rates of tax than smaller ones. I have argued this previously and it has been denied – but Oxford has now confirmed my findings. But I have made this an issue for good reasons. They are:

a) This reverses the policy direction of successive UK governments. We have decided to have a progressive taxation system – and that continues to be what parliament endorses, and yet that is not what we have got. That creates what I have called an ‘expectation gap’ which rightly gives rise to protest. That this exists is confirmed by the newsworthiness of the story Peston picks upon. The gap is real, and I’ll assess its size in another blog, later.

b) If the intention of parliament is not being fulfilled and the messaging that it is intended to deliver to the UK population and business community that there is a deliberate bias in our tax system to help small business overcome the disadvantages it faces when competing with large business is not being delivered in practice then very clearly our corporate tax system is not working as expected, and that is enough reason to demand change in it.

And this bit. I have a vague feeling in my water that we can explain this. For the Oxford report which Ritchie is talking about refers to trading profits. I assume that this is before financing costs. At least I\’ve been told it is before financing costs.

And what is it that we know about large v small companies? That the latter have a great deal more trouble accessing debt finance than the former. And yes, interest paid is deductible from trading profits before we get to taxable profits.

So we would expect large companies, given their access to debt finance, to have more debt than small companies. And we would thus expect interest costs to reduce their trading profits by more than they do for small companies. That is, that the gap between trading and taxable profits will be larger for large companies and thus so will the tax rates differ if we compare tax with trading, rather than post financing, profits.

There must absolutely be some of this going on: whether it\’s enough to explain the gap I don\’t know.

* As ever, please do correct if I\’m wrong here.

Ritchie makes the same damn mistake he always makes

He tells us that the Oxford report on corporation tax proves that his estimate of the tax gap is correct:

Now let’s pull this data together. 90% of companies paying 90% of all corporation tax do not pay at the expected rate of 28% but instead probably pay at a rate less than 21%. Of course that’s an extrapolation of what Oxford say, but it seems a fair one based on what they say. So, currently £32.4bn of corporation tax paid is the result of tax charged on large companies at a rate of less than 21% (let’s call it 20.5% – we don’t want to over-egg this) when as Oxford note (and they would not note this unless they thought it reasonable to surmise this) a rate of 28% was expected, irrespective of allowances and reliefs.

So let’s gross up £32.4 billion and see how much tax would have been paid if settlement had been at 28% and not 20.5%, and the answer is £44.3billion. Take off the sum we first thought of – i.e. £32.4 billion – and the difference is £11.9 billion. Which give or take is near enough £12 billion. In fact if I’d assumed the rate was 20% and not 20.5% the gap  would have been £13 billion.

In the Missing Billions I said the expectation gap – the difference between the sum we’d expect large companies to pay and the amount they actually pay – was £12 billion a year at the time. And now it’s near enough almost exactly £12 billion.

The fact is the Missing Billions was right all along.

See what he\’s done there?

Yup. He\’s entirely ignored the existence of allowances.

And there are a number of such allowances. Capital allowances, R&D tax credits, for all I know there\’s a sucking up to Ed Balls tax allowance.

So, he\’s made here exactly the same mistake he made those years ago in The Missing Billions. He is comparing headline tax rates with paid tax rates and then calling the difference the tax gap. When some (how much is of course still at issue) is the result not of tax avoidance, tax abuse, but is the entirely righteous practice of tax compliance. Using the reliefs mandated by Parliament as Parliament intended those allowances to be used.

And that really cannot be part of any \”tax gap\”, can it?

Do read through the comments over there as he gets a right going over on this point.

And now, for my party trick, I shall show that UK companies are actually paying too much in corporation tax. Far from there being a tax gap, there is in fact a very large overpayment of tax.

So, using Ritchie\’s numbers above, there should be £44 billion paid in corporation tax. But only £32 billion is. That\’s the source of his £12 billion.

But, as we\’ve already noted, no allowance has been made for allowances. Those bits that Parliament deliberately puts into the tax law to get companies to do what Parliament wants companies to do.

As an example, let us take capital allowances. How much, for example, do capital allowances cost the Treasury?

We can take our answer from Hansard.

Matthew Hancock: To ask the Chancellor of the Exchequer what estimate he has made of the annual cost to the Exchequer of maintaining company capital allowances at May 2010 levels. [15222]

Mr Gauke: The annual cost to the Exchequer of maintaining capital allowances at May 2010 levels is currently around £20 billion around 85% of which relates to companies.

My word, that is interesting, eh?

£17 billion in capital allowances to companies.

So, back to our sums. At 28% there should be £44 billion righteously paid in corporation tax. But we\’ve also got £17 billion in capital allowances. The cost to the Treasury is, I assume, at least similar to if not equal to (and please do correct me if I\’m wrong here) the reduction that companies get on their tax bills.

So, we would expect there to be £27 billion paid in corporation tax. Yet, as Ritchie notes, actual tax paid is £32 billion.

Thus companies are over paying tax by £5 billion.

There is no corporate tax gap in short.

Now, please note, not even I actually believe this result in detail, I mean it just as an example of why that £12 billion estimate is entirely Ritchiebollocks.

Just to hammer it home. The Murphmeister tells us that the gap between the headline rate and the rate paid shows that there is a tax gap. Yet he does not adjust for the allowances that are there in the law which reduce the amounts that are righteously and legally owed. And we seem to be able to show that those allowances are larger than his purported tax gap.

That is, that there is no tax gap at all.

Now, given that I am not an expert in tax there may well be some problem with this numerical example. The logic is sound but the numbers may not be: in which case please do correct me.

Gosh, this is an interesting argument

Ritchie:

This is an extraordinary statement. How odd it is that the CEO of an multinational corporation – the sort of organisation that says it only thinks globally – uses the pretext of local law to claim……

And he claims that it is local law – and not the law of the state where his company is quoted – and not the power of international regulation – that must apply.

Umm, he seems to be saying that a multi-national company should deliberately break the local laws in a/some of the countries in which it operates.

If, for example, Angola passes a law stating that an oil company must not reveal what it is paying in royalties for oil (which, if memeory serves, they did at one point) then BP and any other company operating in Angola must break that law.

There is something of a problem with this attitude. With a company operating in the UK Richard insists that both the letter of the law and its spirit must be obeyed by all. For this is the law of the land.

Apparently laws passed by darkies elsewhere don\’t have the same power, are not subject to the same test of sovereignty, as those written by us pink types.

There are countries where women may not drive. This is of course in breach of (and quite rightly in breach of) our own laws on sex/gender discrimination. Must all UK companies now deliberately break Saudi Arabian law by insisting that their female employees there may drive?

Insert example of your choice, but he really does seem to be being colonial here. The laws around the world, whatever the independence or otherwise of other nations, should be determined in a Norfolk parsonage.

Ritchie puts us straight on the incidence of the corporate income tax

The tax debate has reached the level of farce if this is the benchmark Gauke wants to use. But it gets worse:

The second challenge we face is that people believe – or at least give the impression they do – that corporation tax is somehow a victimless tax, not paid by real people.

Of course, as with any tax, the incidence will ultimately fall on someone.

As far as corporation tax is concerned, the question is whether the burden falls on shareholders (largely in the form of pension funds) employees (through lower wages) or consumers (as a result of higher prices).

The consensus, among economists at least, is that it’s predominantly the employee who foots the bill.

This is based on the work of Professor Mike Devereux at the Oxford Centre for the Non-Taxation of Business. Mike is so neoliberal and so open minded he’s banned me from his Centre for a) questioning his assumptions and b) challenging his objectivity when doing so. But ministers still listen to him because it suits their purpose to do so.

Devereux’s work is, however, fatally flawed. What he has argued is that when corporate taxes increase then wages fall. There’s a problem with this though. First, corporate tax rates have fallen almost universally for the last twenty years so he had to work really hard to find his data. Second, he tested only one way even though the hypothesis would have been vastly easier to test the other way – did wages rise when corporate taxes fell? If they didn’t then clearly the relationship when corporate taxes rise is explained by other factors and the correlation he finds is just coincidence. Devereux must have known corporate tax decreases do not result in wage increases, but he chose to ignore the evidence running his tests in this direction could have given to ensure he could deliver the desired result of his work – that corporate taxes are, in accordance with his neoliberal mantra, and that of his funders (for the FTSE 1000 Group of Finance Directors do fund the Oxford centre) desired.

There are many other flaws in his work – but this is the fundamental one – and it reveals (in my opinion, but I know not his) clear political bias to the work which of course also appeals to David Gauke.

No, it isn\’t based on the work of Mike Deveraux.

Up to you whether you ascribe Richard\’s insistence here to malice or ignorance. Entirely your choice.

This is the absolutely standard economics of taxation. It is not a left point, a right point, a neoliberal, classical, Keynesian, New Keynesian, RBC, New Classical nor even a social democratic point.

It is simply an observation about the universe which we inhabit.

Mike Deveraux\’s contribution here has been to make an estimate of what the incidence is here in the UK. NOT, in the underlying theory, but to try and work through the numbers as to whether the workers carry 10%, 90%, more than 100%, of the economic burden of the corporation tax. His answer is arguable, depends upon some assumptions you may or may not be happy in accepting and is that the incidence is more than 100% on wages. That UK workers lose more in lower wages than the amount raised in corporation tax.

That companies do not pay tax we know. That the burden is carried by some combination of shareholders, workers and customers we similarly know absolutely. We even know, again as a matter of fact, not opinion, that the more open the economy and the smaller the economy with regard to the world economy, the more of that burden will be carried by the workers and the less of it by capital.

This is not negotiable and Richard is simply flat out wrong as he wriggles to try and deny it.

How much by whom is certainly still arguable: but not that companies do not pay tax and others do carry that burden

The labourer is worthy of his hire

I\’m directed to this:

Richard Murphy (Tax Research LLP) has been providing a lot of technical support. But please note he is a freelance consultant, so there are limits on what support he can provide without remuneration!

Seems entirely fair to me.

I was asked to do a quick paper just recently and I had to point out that part of my living comes from scribbling for people. If you want a few hundred words of stream of consciousness stuff, as with a blog post, sure, fine.

You want a few thousand of something more considered then yes, you do need to make a contribution to my mortgage/beer bill.

There\’s all sorts of things to pound the man for but making a living isn\’t one of them.

In which we answer Richard Murphy\’s question

Ritchie asks us a question today. An important question too.

Why do we allow the free movement of capital?

We do not allow the free movement of people.

So why do we choose to let capital roam as it wishes? Why is it acceptable to let capital minimise its tax? Why can capital use artifice, from the limited liability entity to the tax haven, and yet we impose the cost of supporting its errors on people?

What is the reason for condemning 5 billion of the 6 billion or so people in the world to poverty to make sure capital can make money?

Why have we made this choice?

The answer is here:

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Because it works.

As the good little liberals that we all are we desire that the poorest and most destitute of our fellow human beings rise up out of the child killing poverty, the miserable hand to mouth existence, which is the Third World peasant lifestyle.

Depending upon where are roots are, our forefathers managed this some several centuries ago (for, say, England, other parts of the UK following hard behind), Sweden managed it starting at the turn of the last century, Hong Kong starting in the 1950s perhaps, and so on, to China and India in the late 70s, early 90s, and as you can see, Africa in the mid 90s. Do, just for a moment, note what rising \”Sen Welfare\” means. It means that both inequality is falling and that average incomes are rising.

We can all also note that, while we can happily argue about how much government was needed to prepare for these various lift offs, each and every one of those lift offs was correlated with a move to a more liberal economic policy. Freer trade, fewer restrictions upon what people could do with their lives, more capital movement.

And this more liberal set of policies is what is known today as \”neoliberalism\”. If you wish, the rediscovery of the classical liberals: Smith\’s leaving the money to fructify in the pockets of the populace.

All of which is why all us good little liberals might sign up for things like the Washington Consensus. Yes, including the free movement of capital.

Because these last 30, 40 years of the triumph of neoliberalism has led to the greatest reduction in poverty in the history of our whole species. The poor are getting richer, global inequality is falling.

Which means that we can answer Ritchie\’s question: why do we allow the free movement of capital?

Because it fucking works, dunderhead.

UK freezes Gadaffi’s assets – but why now?

That\’s the question Ritchie asks so let\’s try and provide an answer, shall we?

Britain said it was revoking the diplomatic immunity of the Libyan leader and his family, including his high-profile son Saif al-Islam, who has had close links with the UK. David Cameron echoed Barack Obama in calling on him to go. The PM said: \”All of this sends a clear message to this regime: it is time for Colonel Gaddafi to go and to go now. There is no future for Libya that includes him.\”

OK, that\’s a start. Prior to this move as the de facto and de jure ruler of a sovereign state, Gaddafi enjoyed immunity.

This is a pretty basic piece of international diplomacy. We really may not like having to o this but it is necessary to deal with the world as it is, not as we would wish it to be. Some arrogant little creep comes to power somewhere: Gaddafi, Mao, Stalin, Herr Hitler and all the rest. And if we\’re not actually at war with them, we\’ve got to accept that, however they gained their state power, they do in fact have that state power.

The gravity of the crisis was reflected in Saturday night\’s vote by the UN security council to impose travel and asset sanctions on Gaddafi and his entourage and a belated arms embargo on Libya – even if these moves are now largely symbolic. Gaddafi also became the first sitting head of state to be referred to the international criminal court by unanimous vote of the often-divided UN security council. British officials also said his exclusion from the UK was an unprecedented act.

See, we\’ve got international laws about these things.

Britain froze the assets of Muammar Gaddafi and his five children on Sunday evening at an emergency meeting of the Privy Council at Windsor castle presided over by the Queen.

Yup.

We may know that someone\’s an arrogant thieving thug, that he routinely steals power from the people along with their cash. But as sovereign, we have to deal with them. So we do. We may all wish to see Gaddafi hanging from his heels from the light fittings of downtown Tripoli but while he\’s a seat at the UN, is acknoweldged by the \”international community\” as The Bloke, we cannot do anything else.

Once he\’s not so regarded, of course we can.

So that\’s the \”why now?\” answer. He had both diplomatic and sovereign immunity. Now he doesn\’t.

And shouldn’t we now freeze the assets of the leaders of a great many more states?

And if not, why not?

Because Richard, in order to do so, you\’ve got to get the UN, that guardian of international law (I know, snigger) to vote that you can.

Well done to the Royal Bank of Scotland!

The Guardian has reported in the last few minutes:

Bailed out Royal Bank of Scotland reported losses of £1.1bn for 2010 – but still plans to pay out bonuses of £950m to its bankers.

The contempt bankers have for society is evident in the comments made by Stephen Hester made. The Guardian reports:

He admitted that he was not able to hire staff as easily as he hoped because the bank has often become a “political football”.

“Our ability to attract, retain and motivate the best people is still not what we want it to be. Our business challenges and the external environment lead to management compromises that add risk to the achievement of our business goals. We are working hard to move forward and balance staff motivation with external acceptance that past mistakes have been addressed,” he said.

Motivation is not created by £950 million in bonuses?

Just think.

If RBS had paid no bonuses, then there would be just a small little loss. Which would mean that the government would get no tax money: you don\’t pay 28% corporation tax on a profit that hasn\’t been made.

If you pay out £950 million in bonuses then of that £950 million, 63.8%* will go in tax to the government.

So, the government, all those front line services, are better off by £606.1 million.

Well done the Royal Bank of Scotland!

In more detail, we might look at the actual results:

Hmm, no, that\’s not formatting, so have a look at page 23.

You will see that the City style stuff, the markets, the investment bank style bits where people do get large chunks of wonga as a bonus made huge great big gobs of money.

You will also see that the losses came from \”impairments\”, losses on past activities, and these losses were in retail and commercial (Ulster Bank did something very wrong there).

That is, the peeps getting bonuses made huge amounts for the bank, the people who don\’t normally get huge bonuses (retail and mortgage managers etc) in the past lost huge amounts.

At which point I defy you to tell me that paying bonuses is a bad idea.

* Assume, a not unlikely assumption, that all those getting bonuses are already at the top tax rate of 50%, add 13.8% employer\’s national insurance.

Quite marvellous

Your comment is absurd

If you genuinely think that there is no room for misunderstanding in the interpretation of the written word you’re either a) naive or b) deceiving yourself

In which case perfect legsilation is not possible – but the spirit of the law remains intact none the less

So how are we to divine the spirit of the law without recourse to that inevitably potentially misunderstood written word?

Hmm, the only way I can see this being done is that we have some group of, oooh, I dunno, senior and well respected people to do this for us.

Mebbe something along the lines of lawyers who have been lawyering for a few decades? Get \’em together, anyone who has a problem with what the law actually is, you know what\’s the real meaning of this not quite clear piece of prose, can go and ask them.

Mebbe even if people are having an argument about what the law is, they could pay some fees and end up in front of these experienced lawyers?

And these greybeards, they could, when deciding what that law really means, have a look around the world at other, similar, systems and see how other, similar, systems have decided in other, similar, such arguments about that true meaning?

Heck, we\’ll even let them look at Hansard so that they can try and divine what the politicians thought they were doing rather than what they\’ve actually written down.

Sounds like an entirely reasonable and effective system of deciding what is in fact the law, sorting through these arguments about what is the spirit and the letter of said law, no?

The only remaining question I suppose is why we don\’t go off an build such a system. To which the answer is:

This is exactly what our current legal system does.

We have \”judges\” who sit in \”courts\” and use \”cases\” in which they sort through \”legislation\” and where the \”letter\” and \”spirit\” of the law seem to diverge they look at the \”proceedings of Parliament\” and \”other jurisdictions\” and \”precedent\” to see both what was \”intended\” and what was \”written\”.

And then they tell us what the law is, having reconciled both spirit and letter of it.

What really bugs Ritchie is that what the judges think the spirit of the law is (ie, every Englishman has an absolute right to order his affairs so as to reduce his tax bill) isn\’t what Ritchie thinks the spirit of the law ought to be.

But then who do you think knows what it is better? 20 odd old farts in wigs or a retired accountant from Wandsworth?

Your call.

UKUncut: blithering idiots once again

UKUncut really are remarkable. They\’ve managed to once again take as their target a company which isn\’t doing anything wrong with tax: Barclays.

Think through their targets so far: Arcadia does pay all of its corporation tax, Lady Green isn\’t British and doesn\’t live here, so there\’s no tax system on the planet which would tax her income here.

They\’re insisting that Vodafone should pay tax in the UK on phones sold in Germany to Germans from German shops. Boots hasn\’t dodged anything, they\’ve just replaced equity with debt, meaning that it\’s the people who receive the interest who pay the tax, not the company issuing the dividends: it\’s not even clear that the total tax take has fallen.

And now there\’s Barclays:

Protesters have targeted more than 35 branches of Barclays bank, with pickets, poetry readings and even colouring competitions, in another of a series of days of direct action organised by the UK Uncut group.

They were highlighting Barclays\’ admission that it paid just £113m in UK corporation tax in 2009 – a year when it rang up a record £11.6bn in profits.

There\’s two major reasons that bill was so low. The first is the one that people have already cottoned on to, that the previous year they\’d made losses, losses can be carried forward. There is no rational tax system possible which would not allow this. You pay tax on your cumulative profits over time, not just the profits in any one arbitrary time period.

But the other one is this:

Barclays\’ $13.5 billion sale of its asset management business to BlackRock relieves the immediate worries over the bank\’s capital, analysts said, though it will also increase the group\’s reliance on investment banking to generate earnings.

Ooooh, what\’s that? They sold off a subsidiary.

said it will book an $8.8 billion net gain on the cash and shares deal.

$8.8 billion? Mebbe £5 billion then as a capital gain on that? Hmm, is that liable to corporation tax?

The Substantial Shareholding Exemption applies only to trading companies, or trading groups, who sell or otherwise dispose of shares, interests in shares and certain assets related to shares in other trading companies or holding companies of trading groups. There’s no Corporation Tax to pay on any gain on these disposals, and any losses are not allowable to set off against gains on the disposal of shareholdings outside of the Substantial Shareholdings Exemption or any other assets.

Oh, no it isn\’t is it?

Umm, gosh, can we think of anyone who has used exactly this provision of the law?

Err, yes, actually we can.

For the record, though, some comments have completely missed the mark on GMG\’s corporation tax position. The reason such a low CT bill is found in the latest figures is that the proceeds of the profitable sale of GMG\’s Autotrader business were reinvested and thus attracted a tax relief aimed specifically at transactions of that sort. Taking reliefs as intended by parliament is not tax avoidance.

Yes, that\’s right: the Guardian Media Group made use of exactly this provision. And that isn\’t, at all, tax avoidance. It\’s using, as they say, a tax provision specifically enacted by Parliament for the purpose meant by Parliament.

Guess who the guy saying that is? It\’s Richard Brooks: yes, the guy who writes the Vodafone tax stories for Private eye. You know, the guy whose reporting started off the whole UKUncut teenage Trot nonsense in the first place.

And as Murphy R reports:

No complicated planning was needed to produce the low tax charge on the sale of this interest: the government has since 2002 provided that Substantial Shareholdings Relief is due when an asset of this sort is sold and no tax is due. The Guardian was, therefore, being tax compliant: the company is doing what the government wants, and for which it provides a relief. It would appropriate to criticise the government for introducing a tax relief of this sort: the Guardian cannot be criticised for using it when the law required that it be applied.

Not only isn\’t this not tax avoidance, it\’s not even tax planning: it is, as we get from the keyboard of the oracle himself, tax compliance.

So given all of this, given the way that Brooks and Murphy so strongly defend GMG (recall, Murph tells us that not only was there nothing wrong in The Guardian doing this, they had to do it!), what in buggery are those idiots doing hanging around the bank branches yesterday?

And why isn\’t Chuka Ummuna being forced to wear a Dunce\’s Cap?

Answers on a postcard please…..

Update: There\’s a more reasoned and accurate description here.