Tax Law Today
Tax law is always in the news, particularly because taxpayers like to break it. Whether this happens in extravagant or in tawdry ways, it will happen. Take America: in Texas this week domestic terrorist Joseph Stack quite extravagantly flew his plane into IRS offices, citing dust-ups with the agency in his detailed suicide note. On the same day, former New York police chief and hero of September 11 Bernard Kerik was convicted of tax fraud, and instructed to pay some £120 000 in tawdry restitution.
But this year, tax law has entered the international stage. In the context of recession government revenues have been falling around the world. Indeed, the Treasury urges us to consider the £4.3bn it had to borrow last month in light of the revenue-draining effect of ‘one of the worst recessions in modern history’. (It is also true, and predictable given the size of banks such as RBS, that our bailouts were the most expensive in the world by proportion of GDP.)
The least unpopular remedy for the budget deficits these misfortunes create is to raise taxes on the rich. In Britain, Brown will raise the top rate, and Cameron cannot promise to lower it should he win this May. In the US, a Democratic Congress will let Bush’s cuts expire. And the 95% of families which Obama’s ‘stimulative’ taxcut reached, naturally, excluded those top 400 households who earned $130bn in 2007: for according to Matt Yglesias, the 24 million ‘who comprise the bottom fifth’ together earned only $117bn more.
Closer to home, tax haven the Isle of Man determined this week to pass an ‘auterity budget’ that would raise taxes on income – with, according to the Financial Times, ‘bills for some rich individuals rising by more than £5,000’. Presenter Jeremy Clarkson owns land in the dependency.
And in parallel, the dated concept of a ‘Tobin tax’ on financial transactions has gained political momentum recently with filmmaker Richard Curtis’s rebranding of it as ‘the Robin Hood tax’.
Even those measures, however, will yield returns that are dwarfed by revenue shortfalls. And this is where the law comes in: as governments start to pinch pennies, they will try harder to enforce or modify tax laws the richest have historically evaded. Harbingers of this trend are emerging now.
For example, in Germany this week, 1 800 tax evaders declared their Swiss holdings to the government after it threatened to buy a disc that contained details of the hidden accounts.
Last month Labour’s Treasury Minister described the practice of hiding money from the taxman in offshore accounts as ‘morally and economically unacceptable’. Many had given themselves up as a result of an HMRC amnesty, itself following the G20’s renewed commitment in 2009 to tax transparency, and the formation of a new ‘high-net-worth unit’ within the department. The Times reports that
The HMRC expects to raise £500 million over three years as a result of the people who have come forward voluntarily and much more from those who have not.
The government’s finance bill would prescribe new maximum fines of 200% for such infractions.
Most important, the Court of Appeal and the Tax Tribunal, in two separate rulings this week, undermined regulations of long standing that had exempted non-resident Britons from tax on foreign earnings and ‘not ordinarily resident’ foreigners from tax on earnings here. Millionaire Robert Gaines-Cooper was found not to have ‘severed’ ties with the UK, which in the Court’s view ‘remained the centre of gravity of his life’ (he maintained an Oxfordshire estate). The decision shattered what lawyer Christopher Groves called the ‘myth’ that living in the country for less than 91 days a year was sufficient to qualify as ‘non-resident’. Furthermore, the income of Austrian financier Andreas Tuczka was deemed taxable by a Tribunal despite his not having reached the third anniversary of his arrival here – the usual benchmark for residency status. Tuczka’s intention, he claimed, had been to leave before the anniversary.
Reporting the rulings, the Financial Times talked in worried tones about ‘the risk of retaining close ties with Britain.’ Some economists fear a ‘brain drain’ of financial and business talent if the government continues to seek the money rich citizens owe it under law. But – reply the populists – with some of that talent lies most blame for a downturn, and attendant bailouts, that indebted a nation.
Tax doesn’t have to be taxing? Increasingly, governments have seemed to conclude, for the richest it hasn’t been taxing enough.
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