Other recent
entries in this blog:
02 November 2008
You Can't Escape; Resistance is Futile
KPMG told us last week that there is something of a competition between countries
to attract highly mobile, better off people with lower tax rates, and it foresaw
a time when indirect taxes (VAT and the like) would be of more importance than
direct taxes such as income tax.
Individual citizens, except at the highest
levels of wealth, are firmly rooted within the nation state of their birth,
due to inertia, language, family ties and culture, allowing nation states to
tax them with little fear that they will decamp to rival countries. At least,
that is true during their productive (and most tax-generative) years. In retirement,
people have more choices. Recent surveys have shown that astonishingly high
proportions of people in high-taxed countries such as the UK would leave if
they could, and many are preparing the way by buying properties in countries
which they see as being more welcoming (warmer, less expensive and less taxing).
There are long term trends which will
gradually break down the convenient access nation states have to the income
and assets of their citizens, including:
- the ease of tele-working (you can
work for a Berlin company as a consultant while living in Malta);
- the fleet-footedness of companies,
noted above, which can quickly remove taxable activity from a high-taxing
jurisdiction, making it far harder for the jurisdiction to tax their residents'
income streams from such a company;
- the rapid growth of virtual (Internet) economic activity,
which is often hard to attribute to any particular taxing jurisdiction; and
- the growth in individual wealth, leading to higher
and higher proportions of 'rentier' income, allowing individuals to base themselves
in low-taxing jurisdictions while providing paid-for services to supplement
income.
It is not easy to forecast how this combination
of trends (and others) will work out, but it seems unavoidable at least that
the taxing countries will reach an agreed international solution, possibly based
on residence periods. Thus, there could be universal taxation based on physical
residence (you live in the Comoros Islands for six days in a year, you will
pay tax on 6/365 of your global income to the Comoros, at their rate of income
taxation). There will be no corporate tax ('People pay taxes, not companies'
- Mrs Thatcher, c. 1980), withholding taxes, VAT or double tax treaties (not
needed).
Alongside some kind of globalisation
of personal taxation, it is reasonable also to expect that there will be a global
currency, and world-wide insurance for health-care, pensions etc, with such
'social' benefits being provided by global, private companies rather than by
nation states.
There are some pre-conditions to such
a system, however, including (something inevitable) that individuals will have
tamper-proof biometric identification, that financial flows will be fully transparent,
and that language will have ceased to be a barrier to human interaction. These
conditions are likely to have been fulfilled by 2030, so that is the probable
timescale of personal fiscal globalisation. Once it has happened, it will be left
to countries only to compete in terms of what they can offer individuals: the
local income taxation rate, and non-economic goods such as quality of life,
law and order, planning and zoning, and 'culture'.
In the medium term there may still be national safety
nets for individuals and families; longer-term, they are likely to become part
of a globalized welfare system.
19 October 2008
Tax Harmonization Is Coming!
A little noticed judgement from the European Court of Justice last week cements
another brick in the wall of European tax harmonization.
Governments of member states such as the UK and Ireland stand firmly behind
their red lines, refusing to allow the EU to have 'competence' over fiscal matters
other than VAT, where the battle was lost a long time ago, and fighting against
the CCCTB (Common Consolidated Corporate Tax Base) while, through the back door,
the ECJ is quietly colonizing their tax systems, bit by bit tying them down
with gossamer rulings which they hardly notice, but which will one day render
them immobile.
The latest ruling, by Advocate General Mengozzi, states that the German tax
authorities were wrong to disallow a tax deduction for a charitable donation
by a German citizen because the beneficiary organisation was located in another
member state. His opinion argues that less favourable tax treatment for cross-border
donations may discourage people from making such donations and found that the
German legislation constitutes a restriction on the movement of capital within
the single market.
Almost all countries give tax deductions for charitable donations, but most
of them set hurdles in the path of people who try to claim for donations made
to foreign charities, or exclude them altogether. In some countries, the charity
is able to claim back basic rate income tax on donations, leaving the donor
to claim higher rate relief if appropriate. How will this work in a harmonized
EU? Surely the ECJ will say in due course that a Bulgarian charity should be
able to claim UK basic rate income tax on a donation made by a Brit? The Inland
Revenue will be apoplectic, but the logic is impeccable.
While we're on the subject, isn't it about time that the ECJ and or the EU
Commission itself did something about the practical impossibility of reclaiming
VAT paid on foreign services? If for instance an EU business hosts a sales meeting
in another member state, the VAT charged by the venue is theoretically reclaimable
by the buyer, but in reality the bureaucracy totally - and intentionally - prevents
this from happening, and needless to say, the buyer is unable to reclaim the
VAT through its VAT return. This is iniquitous, and is a glaring breach of the
freedoms incorporated in the EU Treaties.
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Latest
25 entries from all other blogs:
23 November 2008
Please Securitize Me
19 November 2008
You Don’t Know Until You Go!
28 October 2008
Why the Financial Crisis Doesn't Really Matter
26 October 2008
Is Oil Cheap?
14 October 2008
The British Government’s ‘Ill Considered’ Use of Anti-Terrorist Financing Legislation against Iceland and the Wider Implications
07 October 2008
How and Why You Should Buy Physical Gold Offshore
04 October 2008
Thank You, Mr Paulson
22 September 2008
Scam Busters: Second Citizenship and Passport
05 September 2008
Offshore Banking: Failure to Open a Bank Account
29 August 2008
How to Avoid Envy by Keeping a Low Profile
21 August 2008
High Yield Offshore Investment Programs: Do They Exist?
20 August 2008
Blacklisted Offshore: Private Consultant's Opinion
18 August 2008
Why taking a vacation can improve your health – and wealth!
17 August 2008
Alphabet Soup
11 August 2008
Your Ships Come in Over a Calm Sea
07 August 2008
While Offshore Banking Giants are in Trouble
05 August 2008
Microchips with Everything
27 July 2008
Don't Play Poker With Uncle Sam
25 July 2008
Is Dominica Good for Your Offshore Business?
25 July 2008
How to Leverage Offshore E-Commerce in Your Existing Business
16 July 2008
Is there a trade-off between Freedom and Security?
11 July 2008
Return of Capital is More important than Return on Capital
04 July 2008
Thoughts on Investing in Panama
27 June 2008
Why Offshore Banking Privacy is More Important than Ever
17 June 2008
You Really Can Physically Create Wealth Offshore: Part 2 of 2
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