Ragging on Ritchie

The Sunday Telegraph can reveal that the bulk of creditors – including HM Revenue and Customs and the Government’s Pension Protection Fund (PPF) – will receive no payments as a result of the company’s collapse.

The largest single creditor, lender HSBC, was owed £28.8m at the point of administration, on which it is likely to suffer a “significant shortfall”. The PPF, which had £2.5m worth of loans to Jessops as a result of an earlier financial restructuring, is unlikely to see any money.

HM Revenue and Customs was owed £1.3m in unpaid VAT, National Insurance and PAYE contributions, which, as an unsecured creditor, will not be repaid.

That\’s where a lot of that \”tax unpaid\” that Ritchie goes on about is. In firms (and to a lesser extent, people) who have gone bankrupt.

Not only is it nothing at all to do with tax being dodged it\’s not, even in the slightest, recoverable. It\’s simply part and parcel of having any bankruptcy system at all. And believe me, you really wouldn\’t like a system that did not incorporate that concept.

One, among the many, problems that blemish Richard Murphy\’s suggestions for how he ought to rule the world is that he just doesn\’t understand the simple basics of the subject, economics, that he claims to be expert in.

So, we have this today:

The Prime Minister said yesterday that he could not risk sending between £20 billion and £40 billion on boosting the economy, creating jobs, building social housing, repairing our schools or anything else for fear of increasing interest rates.

OK, so we\’re talking about a little fiscal expansion through infrastructure spending. Could be a good idea, could be a bad one, let\’s leave that aside. But it is at least a respectable idea. There\’s a logic to it, a theory backing it up and so on.

So, now we turn to how Ritchie thinks such fiscal expansion should be financed:

First close the tax gap.

At which point the buffoonery becomes apparent.

No, not the closing of the tax gap (for the moment, leave aside all of his wibble about it). Collecting taxes that are due is not a, per se, bad idea. There might be limits as to how sensible it is to pursue everyone for every last penny, diminishing returns and all that, but the basic principle that people should pay the taxes the law says they should pay seems fair enough.

So neither of these things is, on their own, entirely risible. The combination of the two is.

For increasing the tax take is of course fiscally contractionary. No, it doesn\’t matter whether they put up the rates at which tax is charged and thus collect more or whether they collect more of what is actually due: collecting more tax is fiscally contractionary.

So, what Murphy is actually suggesting is that we should be fiscally expansionary by being fiscally contractionary.

Which is of course insane.

And the insanity comes from the fact that he knows diddley squat of the subject under discussion: economics.

A retired accountant already known to may of us in fact. Telling us about pensions. And how FTSE just isn\’t the right thing.

Which is why what I wrote on pensions in 2003 and in 2010 continues to make sense. We have to invest pension funds in the assets that people want, can see and can ebenfit from and that deny the City the chance to fleece tose assets of value on the way. Those things are called schools, hospitals, transport infrastructure, housing and the green economy. These give rewards now and pay dividends until most people will be of retirement age – unlike most investment in equities or second hand shopping centres, which is the other great pension favourite, or even corporate bonds.

You might recall his plans for those very different pension investments some years back. What was to happen was that all the pensions should be invested in those schools\’n\’ospitals via the medium of bonds. Bonds which would pay 3% interest.

All of which makes it very interesting indeed that in his talking about the FTSE 100 he doesn\’t manage to mention the dividend yield. Which is, near enough, around 4% at present isn\’t it?

Rather reminds me of the time he proved, PROVED I TELL YOU!, that his bonds would produce better returns than the stock market. By leaving out of the stock market returns that very dividend yield.

His post is here. A decent post explaining things is here.

The basic point is that Rolls Royce doesn\’t have many sales in the UK therefore has little profit in the UK. And Ritchie manages to get this bit wrong too:

And they say its because they have to pay tax where they make their sales. Now this second excuse is odd for two reasons. First, because its not true. The world does not have destination taxes.

Actually, in the jet engine business, it largely does.

For here\’s how the business really works. You sell the engine to the airline at something around and about cost price. Then you also sell them a maintenance contract for the life of the engine. Decades in the case of some of RR\’s products. In order to provide that maintenance service you clearly and obviously have to have bases around the world from which you can provide it. These bases are, under the usual tax laws, permanent establishments. That is, they are taxed under the corporation tax laws of the country that they are in.

Sure, the one in Dubai (no, I don\’t know but I would suspect there is one) ain\’t payn\’ much but the one in the US will pay US corporate income tax and so on.

And I\’m afraid this really is true. The selling of engines is pretty much a no profit business. The maintenance and servicing of engines is a high margin, very profitable business. But just because of the way that the servicing takes place elsewhere the profits will be elsewhere. And so will the tax being paid upon them.

And second it’s odd because Amazon make a stack of sales in the UK but say they have to pay no tax here because they’re based in Luxembourg. That’s the exact opposite of the Rolls Royce line.

And the entire set of double taxation treaties around the world says that the use of warehouses and logistics chains does not lead to the creation of a permanent establishment and thus not to the liability for corporation tax paid on sales in a territory where there are only warehouses.

A service centre is a permanent establishment. And thus why RR pays foreign taxes and Amazon does not UK.

And here\’s what\’s so annoying about the MurphClown. He argues that tax should be paid where the economic substance of the transation resides. RR is doing so, paying tax where they provide the service that produces the profits. Eppur se queribunde.

Fascinating post here over HSBC\’s profits and taxes.

As an email correspndent puts it, they\’ve paid tax on the law as it is. He\’s asking why they haven\’t paid tax on the law as he thinks it should be.

The answer being that you\’re not the Tax Dictator yet Ritchie.

But much, much better than that is his stupidity over unitary taxation and country by country reporting.

As you know, Murphmonster wants all companies to report where and how they make their money. So that taxes can be \”properly\” charged where the profit is made. And as you also know, MurphMuppett thinks we should have unitary taxation. Sod where the profits are made, let\’s just apportion the tax where the income, staff and sales are. One third each.

Which gives us this:

Now, let’s look at that a different way. Let’s apply the unitary apportionment formula to group profits. From page 335 I know the company had 48,000 employees in the UK out of 270,000 in all.

And from page 40 of the media release I can get that $9,149 of income out of $68,330 was in the UK, whilst $18,391m of assets out of $79,935 were in the UK.

The classic unitary apportionment formula says that profit should be weighted to a country in proportion with one third of the weighting applying to income, assets and staff. So the maths is:

UK profit = $20,649/3 x ($9,149/$68,330) + $20,649/3 x ($18,391 / $79,935) + $20,649 x (48,000 / 270,000)

Now I make that $3,728 million of profit attributable to the UK on this basis. Tax on that would be $913 million. But $60 million was paid.

So, he\’s got all the information he needs in the current set of accounts to work out how to apply his favoured unitary tax system.

Then he calls for:

The case for country-by-country reporting for banks is compelling.

Why? If we can already apportion a unitary tax with hte information we have then why do we need cbyc?

Which is where we come to the sad truth. Ritchie \”invented\” cbyc. So he says, even though it\’s not true. And he\’s heavily invested in cbyc as a result. He\’s also bright enough, just, to see that everyone else (sorry, all other corporate tax weebs) is thinking about unitary as a solution to the problem. So he\’s hitched to that wagon as well. But he\’s still too dim to realise that if unitary then cbyc is irrelevant. For the tax system will no longer care where the profit is made so we don\’t need accounts which show where it is. Because tax is simply apportioned under the unitary system.

That there are idiots out there is obvious. There\’s nothing else that would explain the Labour Party. But puhleese, as the English that we are, couldn\’t we please have a better class of idiots?

Over at Ritchie\’s.

A sensible thing to do when in error is to say \”Oh yes, so I am!\”

Not the Murphmeister though, oh no, not the Murphmeister.

Mr Murphy

The Swiss package is very different from the EU bonus bonus cap regulation. The Swiss rule does not set a statutory limit to the amount of compensation, or it’s structure, but only makes them subject to mandatory a shareholders’ vote. It only affects the compensation of directors and executive officers, but not rank and file employees including officers.

Interestingly, the law is really only relevant for public companies listed in Switzerland. It will have little bearing on private companies or partnerships (like many of the private banks). Also, it will make little difference to the subsidiaries of foreign companies in Switzerland: the Swiss subsidiaries of JP Morgan or Glencore will continue to be able to pay their people just as they wish.

Reply

Richard Murphy says:

March 3 2013 at 5:21 pm

You are clearly a true far right libertarian (which is why I find you so tedious)

You have not a clue that once there is a law the public will not tolerate its abuse

And they won’t in Switzerland now that 68% of people have voted to stop it

You really do need to get your head round democracy

There is, of course, more.

Can be read in all its glory here. And he is of course still making the same basic error he\’s been making for months now.

He defines things that are specifically meant and intended in law as not being tax avoidance. Of course they\’re not sez \’ee.
He then defines what Amazon and Starbucks are doing as tax avoidance.

But what Amazon does is indeed laid out in law. In the double taxation treaty: the use of warehouses and logistics chains does not lead to the creation of a permanent establishment. Therefore, although they are undoubtedly not paying tax as a result of the way that they have organised themselves this cannot be tax avoidance. For in Murphy\’s definition of avoidance is the insistence that it is only the unanticipated or unmeant use of the law which can lead to such. And, of course, if the law says that warehouses don\’t create a permenent establishment and a company uses warehouses but does not create a permanent establishment then this is the pure and simple use of the law exactly as it was intended.

Similarly with Starbucks over say royalties: the law (this time EU law) states that it is actually illegal for the UK to attempt to tax such royalties going to another EU country. Given that we really cannot conclude that sending royalties to another EU country is tax avoidance now, can we?

He\’s simply blind to the fact that his own definition of tax avoidance means that a lot of what he\’s complaining about is not tax avoidance.

Alex Andreou takes Toby Young to task over the details of taxation. Then lets slip this nonsense:

His position also conveniently assumes that these members of the haute monde do not have access to talented accountants, umbrella companies, offshore trusts, wives in Monaco, creative avoidance schemes or any income that comes from dividends.

Erm, income from dividends doesn\’t produce a lower tax rate, sorry, but it doesn\’t. The system is set up so that the company takes a slice off the dividend payment and sends it to the Treasury. Then the individual, if they\’re in a higher tax band, must send more. It doesn\’t end up entirely and exactly the same as the taxation of regular income, but the system is most certainly trying to make the income tax paid roughly the same.

We\’ll have to call this Ritchie\’s Law. Muphry\’s Law is that any correction of typos or grammar will contain one or more spolling of grammer mistakes worse than those being complained of. Ritchie\’s Law is the corollary that applies to taxation.

As with, of course, that famous moment when Ritchie decided to correct the calculation of dividend taxation and got it wrong.

So Ritchie sees a discussion paper from the OECD which says the following:

Investor confidence in financial markets depends in large part on the existence of an accurate disclosure regime that provides transparency in the beneficial ownership and control structures of publicly listed companies.

Pretty uncontroversial I would have thought. The various stock exchanges of various countries have just such reporting requirements in place already. Anything approaching even within a hint of a soupcon of a stake that could give management power must be reported and publicly disclosed.

Ritchie takes this to mean:

So let’s have beneficial ownership on public record, now

Ritchie wants all all corporations, trusts, LLPs and all the rest, every single structure, to have to provide publicly available details of beneficial ownership.

The OECD says this is terribly important for publicly listed corporations.

Ritchie takes the OECD as agreeing with his campaign. Apparently having missed the \”public\” bit there.

Indeed, many UK-based companies derive significant royalty income streams from their overseas subsidiaries to their home base, so much so that the royalty inflow into the UK is greater than the outflow, making the balance of payments on royalties a net positive.

So if all that royalty shuffling around is banned then the UK Treasury would lose money.

Fascinating, don\’t you think?

jcd ?@jcaetanodias

Tim Worstall encontrou um saco de boxe.

As in:

Ver a série Ragging on Ritchie

I assume that \”saco de boxe\” means \”punchbag\” there.

Criticism 4.
That a better solution would be to phase out corporate taxation, which is only a cost
that firms pass on to customers and consumers.
Response 4:
Ending corporate taxation would mean either enormous cuts in public spending or large
increases in taxes on individuals.

Given that corporation tax raises between 1 and 3 % of GDP in most industrialised countries its absence would not lead to either enormous cuts nor an enormous rise in taxes on individuals (who, as the tax incidence argument already notes, carry the burden anyway).

For example, Sweden has cut the burden of government by fully 15 percentage points of GDP in recent years. And it\’s not as if they\’re doing badly, is it?

The days when the free movement of capital could be assumed to be beneficial are over.

And it\’s one that\’s at the heart of Ritchie\’s maunderings.

Far more than anything about \”tax justice\” that\’s the goal he\’s got in mind. To prevent that free movement of capital. Something of a pity of course that he strives for this just as we see the beneficial effects of it: the greatest reduction in poverty in the history of our species.

But of course Ritchie suffers not just from the Dunning Krueger effect but also from Kip Esquire\’s Law. Not only does he erroneously think that he\’s competent to direct the capital investment plans of an entire nation, he thinks, erroneously, that if such a system existed then he\’d get to do the directing.

This has also been tried of course. In those very undeveloped nations that he claims to care about as well as here. Didn\’t work then and given the fuckwits who go into politics wouldn\’t work in the future either.

I\’d recommend he have a little read up on what happened to Ghana under Nkruma if he doesn\’t believe me.

George Osborne has granted a tax amnesty to overseas athletes competing in this summer’s London Grand Prix in the Olympic Stadium to ensure that Usain Bolt takes centre stage on the anniversary of the Olympic opening ceremony.

The background is that if you\’re an athlete (and certain musicians etc) then if you perform in the UK the UK will tax you not just on the money you earn from the event but on a portion of your worldwide earnings for the year.

Approximately, but not exactly, if you have 15 competitions in the year and one of them is in the UK then they\’d like tax on 1 15 th of your global income. All the product endorsements etc. Whether those contracts have anything at all to do with the UK or not.

What amuses though is that Ritchie insists that people don\’t change their behaviour in view of tax rates. But that an amnesty of this type is considered necessary shows that they do. Without it Bolt just wouldn\’t turn up. And refusing to compete in a country because of the tax rates is indeed changing your behaviour over tax rates.

RBS has identified 21 people involved with LIBOR rigging – and yet it seems more than half are still there. How come?

Half of 21 is 10.5.

Of those 21 here\’s the disposition of the cases:

Here’s the breakdown:

• Six staff have been dismissed for LIBOR related misconduct, including two managers.

• Six have been severely disciplined or are going through a disciplinary process.

• Eight left the organisation before disciplinary action could be taken.

• One was dismissed for misconduct not related to these findings.

Wouldn\’t it be nice if one of the country\’s leading international and corporate tax experts could count?

Do note that the second set of information comes from the same blog post that is headlined as at the top. It\’s not that he didn\’t know this, it\’s that he cannot count.

Mass ownership leads to short term thinking and long term thinking is needed.

Now Ritchie\’s the bloke who whines about wealth concentration and inequality, isn\’t he?

And yet here he is saying that mass ownership of wealth is a bad idea, it should indeed be concentrated.

Eh?

One of Ritchie\’s many problems is that he just never does look up from his prejudices to check out the real world. He\’s told us often enough that finance overtook the world some 30 years ago (he really means around 1980). And that this was a disaster. As he says here:

But what is clear is that without systemic change we cannot deliver the reform really needed to create a just, equitable and hunger free world.

And at centre of the problem is the world’s financial system that has created, perpetuated and benefited from the inequality Red Nose Day highlights.

When some of us have argued that banking, tax havens and their related activities (and banking and tax havens cannot be separated) cause poverty and even death we have always meant it. And we still do. The gross misallocation of recourse that banks have permitted, encouraged and excused are just part of that.

Hmm.

So, what has actually been happening to inequality, poverty and hunger since the banks did co-opt the world 30 years ago?

So, over this time when the banks have been gobbling everyones\’ money just for themselves we\’ve seen an extraordinary reduction in poverty in the world. Indeed, it\’s the largest reduction of poverty in the history of our species.

Even poor, benighted, sub-Saharan Africa has been benefitting: to the point that inequality there is actually falling. As, amazingly, is global inequality.

The really strange thing is that the system he hastens to condemn, the one he blames for all ills in the world, actually seems to have, at the very least coincided with if indeed not caused, the largest success ever in solving the problems he claims to want to address.

I want to beat global poverty. I hope you do too. And I\’m entirely relaxed about the idea that the banks gobble all our money is this is the end result, that global poverty is beaten.

What worries me about Murphy and the like is that he doesn\’t even seem to have noticed this. Let alone considered that he might be in error.

Third, the government has to expand its consulting base on tax, much more widely. These firms have too much power.

Or, as we might simplify this message: \”Gissa\’ Job\”

Tax dodgers are costing the UK nearly £200 per household – a total of £5.2billion every year, according to a report.

The unpaid taxes would be enough to provide £21 a week to every household in fuel poverty or double the amount of universal childcare entitlement to 25 hours per week, the study from Oxfam said.

The figure only covers tax evasion by individuals. If the amount of tax lost by the public purse through tax avoidance and illegal invasion by individuals and companies is added together, the figure is more like £32billion a year.

Ritchie normally claims something more like £120 billion for avoidance and evasion put together.

Obviously Oxfam are terribly off message here.

Of course Spain has massive problems; it has also had massive tax evasion and a completely absurd property boom. But these are falls in retail sales. Consumption is collapsing in the wake of tax rises and austerity cuts which in combination are destroying all prospect of any economic recovery and in the process are eliminating any chance that Spain can address its debt issues.

This is the realtiy of what George Osborne wants for the UK.

This is what neoliberalism and its small minded practitioners prescribe.

And it does not work. It just creates the destruction of value, and not just economic value at that, but the real value of human endeavour.

When can we put this madness behind us?

Leave the Euro maybe?

For that is what is causing the disaster in Spain. It\’s not neoliberalism at all: it\’s the euro, which is a decidedly non-neoliberal project.

If you have your own currency, your own printing presses, then you can, in a corner like Spain is, deliberately inflate the money supply (from QE to helicopter drops of cash, as Friedman himself pointed out) and thus you don\’t have to go through this hard austerity.

I don\’t claim that monetary theory will solve everything. But I do claim that it will solve monetary problems. And that\’s what Spain has at the moment: a plummeting money supply. It was Friedman himself who pointed out that this is what entirely fucked up the US in 1930. That they\’re doing it again in the name of \”Europe\” doesn\’t make it any less tragic: and nor does it make it neoliberalism.

This is, in fact, anti-neoloberalism. And yes, we\’ve been shouting for years that this would happen. And since it has started happening we\’ve been shouting that the solution is to break up the euro. Or if that can\’t be done then the ECB has to be doing that QE and helicopter drops.

I don\’t mind being blamed for the things that neoliberalism does do (like, increase in country inequality) but I do object to being blamed for what we warn against.