Tough Tax Talk As The Swiss Play It Cool

I have to admit to.. and I will use a German word here.. Schadenfraude.

The German finance minister, Peer Steinbrück, said Tuesday that Switzerland should be placed on an international list of tax havens, this without even laughing, as his country moves from one cock-up to another.

Speaking to reporters in Paris after a conference on measures to combat tax avoidance, Steinbrück said Switzerland deserved to be on the list being drawn up by the Organization for Economic Cooperation and Development because Swiss investment conditions encouraged some German taxpayers to commit fraud.

Delphine Jaccard, a spokeswoman for the Swiss Finance Ministry, said in a statement, "Switzerland has taken account of the results of the conference and presently sees no reason to react." Switzerland, she said, "has already made agreements with several states, including Germany" relating to "the exchange of information for the implementation of domestic law of contractual states in cases of tax fraud."

"Switzerland is only prepared to cooperate with us if there is tax evasion," Steinbrück added. "But to prove this tax evasion we need the exact information that Switzerland has, but it will not deliver it. That is the problem."

Now I don't mean to go on a rant...but I will.

The Germans, once again, are vomiting forward the opinions on Switzerland’s whole financial system not just its taxation procedures. The whole idea that Switzerland should be forced into Europe by marginalising it is a typical bully boy tactic of a crumbling alliance.

I would have thought that the Germans should take a look at their own system first and show the rest of us their shining example in fiscal management.

For example Herr Steinbruck, take a look at the fine way your regulatory and market organisations have managed the VW/Porsche farce.

Porsche said on Monday that it had 43pc of VW's shares, and options relating to a further 32pc. That sowed panic among hedge funds who had sold the stock short. As they desperately tried to buy shares to cover their positions, the price shot up as high as 1000 Euros or 20 times the target of most analysts.

The squeeze leaves many with red faces. Start with the short sellers. They may have reckoned Porsche would pause on its buying campaign once it hit 51pc, leaving the shares to deflate for a while. But VW’s limited free float made that a risky bet – akin to picking up pennies in front of a steamroller.

German market overseers also look inept. Porsche doesn’t have to disclose its activities in the options market, even if those options would in practice enable it to lay its hands on the underlying shares. That leaves other investors largely in the dark.

The words 'piss', 'up' and 'brewery' come to mind.

German Index tracking funds were forced to buy VW shares to keep in line with the index weighting in what amounts to guaranteed losses for million of Germans. During all this time the market regulators sat on the fence and did nothing. No suspending of trading, no limits, nothing. Finally the Dax announced that all would end on Monday. I guess this waiting game is so the Herr Steinbruck can find a way of blaming their totally inept handling of the affair on someone else, the evil Swiss perhaps.

I am reminded of the chant when England beat Germany at football 5-1. "Let's all laugh at Germany."

Of course the Swiss banks, mainly UBS have smarted from losses and bad moves, but we have kept the bail outs in-house. If Europe is such a great idea then I would have expected to have Hungary (an EU member state) bailed out by its European 'partners' not so, the IMF did that.

By the way Herr Steinbruck, my house prices has not gone down 30%, and there are no foreclosure signs in my village.

I would suggest that before the European community starts being tough guys with Switzerland they get themselves into a position where corruption is routed out of the EU Commission, that the EU actually creates a regulatory system that works rather than just fleecing its members, that politicians stop taking money from the banks they are supposed to oversee and that governments create a workable tax system that doesn't tax the life out of its citizens, perhaps then they will not seek out 'tax havens'.

The whole EU community should take a long hard look at the way Switzerland runs its affairs. We have true democracy here with referendum on pretty much everything, we have a firm but fair regulatory system that protects against systemic risk.

The EU may also want to consider the rule here that if a lender is found to have not done sufficient investigation into the ability of the borrower to repay the loan, then the lender becomes liable.

This simple ruling adopted by the loud mouthed politicians in the EU scrambling to blame everyone else, would have killed this current crisis before it even started.

When Houdini was performing his tricks he said the essence of magic was misdirection, get your 'mark' to concentrate on something else while you performed your 'magic'. This is a classic case of misdirection. Blame the tax havens for your problems so they won't notice you trying to shovel away the excrement you have left on your own doorstep.

Thanks Herr Steinbruck, for your opinions, but next time we want them we will ask... just don't hold your breath.

Lock and Load.. It's Tax War

The latest in the tax Mafia saga hit the broadsheets today with news that hundreds of Britons with investments in offshore tax havens face electrocution...sorry.. 'prosecution' after an investigation by HM Revenue & Customs.

The tax office is believed to be particularly interested' in about 300 Britons with investments totaling more than £1bn offshore, most notably the tax haven Liechtenstein.

How did they come by this information? The tax authorities secured the information from a disc they bought. This disc reportedly contains information on 100 of the some of the wealthiest families in Britain who have accounts in Lichtenstein.

This is after 44,000 Brits gave up their banking information on the Revenue's last attack. It was worth it for them however, they claimed to have raised £400mn in back taxes, penalties and interest.

Those who didn’t 'fess up' are being investigated with the likelihood that criminal proceedings will be taken against the worst offenders.

As I have said before, I am not against the IRS, the Revenue or any other tax authorities seeking to maximise their tax revenue. I am very much against the methods that are being employed and the rhetoric that is going along with it.

Here is the story so far:

In February 2008, a global tax scandal erupted after a former employee of a Liechtenstein trust company provided tax authorities around the world with data on about 1,400 persons with accounts at LGT Bank in Liechtenstein.

On February 14, 2008, German tax authorities, having obtained the names of 600-700 German taxpayers with Liechtenstein accounts, executed multiple search warrants and arrested a prominent businessman for allegedly using Liechtenstein bank accounts to evade €1 million ($1.45 million) in tax. About a week later, the U.S. Internal Revenue Service (IRS) announced it had “initiat[ed] enforcement action involving more than 100 U.S. taxpayers to ensure proper income reporting and tax payment in connection accounts in Liechtenstein.”

The United Kingdom, Italy, France, Spain, and Australia made similar announcements on the same day. Altogether since February, nearly a dozen countries have announced plans to investigate taxpayers with Liechtenstein accounts.

In May 2008, a second international tax scandal broke when the United States arrested a private banker formerly employed by UBS AG, one of the largest banks in the world, on charges of having conspired with a U.S. citizen and a business associate to defraud the IRS of $7.2 million in taxes owed on $200 million of assets hidden in offshore accounts in Switzerland and Liechtenstein.

The United States had earlier detained, as a material witness in that prosecution, a senior UBS private banking official from Switzerland traveling on business in Florida, allegedly seizing his computer and other evidence. In June 2008, the former UBS private banker, Bradley Birkenfeld, pleaded guilty to conspiracy to defraud the IRS. His alleged co-conspirator, Mario Staggl, part owner of a trust company, remains at large in Liechtenstein. The current UBS senior private banking official, Martin Liechti, remains under travel restrictions.

The above is taken from the Senate Hearing Committee chaired by US Sen, Carl Levin who has said;

"Tax havens are engaged in economic warfare against the United States and honest, hardworking American taxpayers."

He chairs the same Senate sub committee that was headed by Senator Joseph R McCarthy. Yes the very same McCarthy who gave rise to the term "McCarthyism" when directed at "the practice of making unfair allegations or using unfair investigative techniques, in many instances unsupported by proof"..

I don't know your view but bribing a disgruntled employee and giving him a new identity for giving up the information seems...well, a little 'off'.

You have to read the Senate Hearing Report in order to get a full grasp of the information that this guy gave up. It was not just bank account details with money in, it was huge amounts of information on corporate structures.

For example (and I have changed the names..if you want to read the doc...it will be on the net somewhere).

MR X Accounts: Hiding Assets from Courts and a Spouse.

Mr. X, a U.K. citizen, has claimed residency in Bermuda, but lived in California for a decade, from 1991 to 2002. In 2003, after his wife of nearly 40 years filed for divorce, he effectively disappeared from view, ignored court orders to transfer California real estate and £3 million in alimony to his ex-wife, and hid assets from the court in offshore jurisdictions around the world, including possibly at LGT.

LGT documents show that, in the early 1990s, LGT helped Mr. X open an account in Liechtenstein and deposit millions of Swiss francs, apparently transferred from another Liechtenstein bank that had been disclosed to his wife’s legal counsel.

In 1998, having obtained information indicating that Mr. X was hiding assets from his wife and tax authorities, LGT nevertheless helped him form a Liechtenstein foundation and transfer into its account his existing LGT funds, then valued at nearly 10 million Swiss francs or $6.6 million.
Also in 1998, Mr. X purchased a $700,000 condominium in California, hiding his ownership by making the purchase in the name of a Guernsey corporation owned by a Guernsey trust. Despite evidence that he lived in the condominium for years, Mr. X denied being a U.S. resident; an internal LGT memorandum noted approvingly: “The financial beneficiary has his PLACE OF RESIDENCE IN BERMUDA and not in the U.S. Hence, he pays no taxes in the U.S.!!!!!!”

At the end of 2001, $6 million in assets remained at LGT. In 2003, a U.K. court ordered Mr. X to pay £3 million in alimony and transfer the California realty to his ex-wife. He failed to acknowledge or comply with the court order. When Ms. X filed papers to enforce the U.K. court order in a California court; Mr. X unsuccessfully contested the case. In the end, the U.S. court awarded Ms X the real estate, but she was unable to obtain the alimony. The existence of the Liechtenstein foundation and funds were not disclosed to the courts or his ex-wife.

That is not just bank information, that is laying bear the complete structure of Mr. X's protection of his money. I am not making a comment that he was right or that it was legal, I merely use the above to show the kind of information that was received from the LTG banker.

For anyone with complicated tax structures out there, this must be a frightening revelation.

The issue for me, in all of this, is not that the IRS or any other authority are not entitled to unravel such structures if they are illegal, it is the way that they have come across this information.

The UK reportedly paid £100,000 to see the information on the disc handed over by the banker and have started investigations off the back of it.

Lichtenstein, like Switzerland and other countries have laws that fuel an industry based on efficient tax planning. They have chosen not to make tax evasion illegal and that is the law of the country, why is that not being respected by the international community?

Tax competition is there for all to see. If I can structure my tax affairs with trusts and companies legally formulated through tax havens, what is the problem? If you want to keep more money on your shores, don't tax people as much. If you can't afford to run your country with lower taxes then make cut backs. $255mn per day (not to mention 3000 brave souls) is the cost of the Iraq war for example...

Isn't this the root of our current problems in the market? Countries, companies and individuals borrowing more than they can afford to pay back. Taxes go up (or in this case the tax authorities declare 'war'), companies put up prices and consumers default on their mortgages.

To extend the notion that the root of all evil is people that want to avoid (not evade) paying taxes that fuel an over-indulgent country collapsing under the weight of its own fiscal mismanagement, is, frankly, absurd.

When those countries then unleash bribery and other illegal activities to by-pass sovereign nations laws we are heading down a road that will only end in tears. The problem is, however, that the cartel of tax authorities are obviously hell bent on breaking those countries that are better a tax management than they are.

It's war alright, but it is not on those countries bleating about tax evasion, it is on the inalienable right of an individual to protect his wealth from the tax authorities.

This quote from Frederic Bastiat sums up the current tax war perfectly:

"The war against illegal plunder has been fought since the beginning of the world. But how is legal plunder to be identified? Quite simply, see if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime. Then abolish this law without delay ... If such a law is not abolished immediately it will spread, multiply and develop into a system."

You like paying taxes?

"There is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; all do right. Nobody owes any public duty to pay more than the law demands; taxes are enforced extractions, not voluntary contributions!” - US Judge Learned Hand

The average UK citizen works from New Year's Day to May 24th solely to pay their taxes. Effectively, for a third of a year everyone in the UK is a civil servant. Income tax, national insurance, VAT, corporation tax, capital gains tax ... tax, tax, tax, the list is endless.

And that's not just in one year, that's every year. This happens all the way through your life. And after tax has been deducted, the little that remains is taxed again! If you spend it you're taxed. If you save it you're taxed.

How Little Of £100 You Get To Keep ...

Of £100 earned, 10% is paid in National Insurance contributions (nothing but a euphemism for an additional tax on income) and 22% is paid in Income Tax (40% for higher rate taxpayers). Of the remaining £68 of take-home pay let's say that over a week you spend it thus:

* £15 for a meal out
* £8 on cinema tickets
* £16 in petrol
* £3 put by for electricity
* £7 on some cigarettes
* £9 on a few drinks down the pub
* £4 paid out in insurance premiums
* £3 put aside for Council Tax
* £2 put by for Road Tax

Sound reasonable? Obviously 100% of the last two items are wholly tax. Five per cent of your electric bill goes to the taxman and 4% of any money you pay to protect yourself with insurance. Of the £23 you spend at the flicks and eating out, 17.5% goes to the government in VAT. While you're enjoying yourself, so is the Treasury; they take £4.03 from you for the evening.



35% of a well-deserved drink goes direct to our masters, and a recent AA campaign followed by the picketing of oil refineries serves to remind us that a staggering 85% of the money spent on petrol is snatched by the taxman. Eighty five per cent! But even that is not the worst. The state loves a smoker, of course, and from the money spent on cigarettes an astonishing 88.9% enters its coffers.

It brings tears to the eyes. Altogether, a full £32.31 of that week's expenses goes straight to the taxman.

Of the £100 earned, £64.31 will have been paid to the government in tax. At the end of the day, all you will have to show for it is £35.69 in goods and services. A higher-rate taxpayer will retain a miserly £21.69.

Oh, and we haven't even taken into consideration the host of taxes on business, employers national insurance contributions, airport taxes, capital gains tax ... and then there's stamp duty, where you hand over thousands just because you decide to move house! Somebody is taking us for a ride.

Don't think for a moment that European federalisation will stop with the Euro. The Germans are already making ugly noises about harmonising taxes throughout the community. In addition to the £11 a week every man, woman and child in this country contributes to the scandalously-corrupt EU, there'll be no escaping having to cough-up even more in tax – higher income taxes and higher purchase tax. When VAT rates are inevitably 'harmonised', books, newspapers, children's clothes and even our already over-priced food, presently with no VAT added, will increase by 20%... overnight! Does that thought sit comfortably with you?

No wonder the ex-Paymaster General, Geoffrey Robinson, secretes his considerable fortune offshore, tied up in unravelable trusts. A politician who knows how to make money knows how to keep it! Especially when he's privy to what's over the horizon. If tax avoidance is good enough for a Paymaster General, then I'm pretty sure it's good enough for the rest of us.

And look even further into the future. Whatever may be left at the end of your life doesn't escape the taxman either; a significant proportion of your estate... what you've managed to build up over the years will be taken in inheritance tax.

Marvellous, isn't it? You spend all your life trying to protect your family and build something for their future, and the government steps in and grabs a large chunk of it when you're dead and buried and hardly in a position to complain – just when the family you've left behind is at its most vulnerable. Civilised, aren't we?

The government trys to put a spin on those avoiding tax as, somehow, not good citizens, or they try to make it sound sinister and morally currupt. The simple fact is that it is your right to organise you tax affairs in the most efficient way possible. I started with a quiote from a US judge and I will end with a quote from a UK Law Lord, Lord Clyde.

"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the Taxing Statutes for the purpose of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue.”