The language, or rather political language de jour, is for the canvassing potential members of the next parliament (Parliamentary candidates in the UK) to merge two very different concepts into one, in the public’s mind. Those words are tax evasion andtax avoidance. We (at the theMarketSoul) believe we potentially know why, but the consequences might not yet be clearly understood.
At a recent televised debate attended by potential next Business Secretary representatives (politicians who would be in charge of the Business, Innovation and Skills [BIS] department) from the three major political parties, one of the candidates challenged the audience thus:
“You (tax advisers) know the difference between aggressive tax avoidance on the the one hand and tax planning on the other.” No the question was actually this: “Please raise your hand in the audience if you donot know what aggressive tax avoidance is.” From the podium the verdict came that about half the audience raised their hands. And therein lies the problem: Are you making this a moral question now? Because until someone is able to clearly define and explain how morality and tax planning are linked; we at theMarketSoul cannot help but think: Where next in this one sided ‘supposed’ quasi debate?
It really depends on how you ask the question:
Is taxation moral? Is paying tax moral? What level of taxation is moral? Is being moral, paying your taxes? If you don’t pay taxes, are you immoral?
Let’s just pause for a moment: #Tax avoidance talk is all the rage at the moment…
In order to redress the balance of negative sentiment, combined with a political(ly) charged environment with electioneering by all major political UK parties posturing new populist policies (say that fast a few times); we thought it a good idea to put a little perspective on the matter of #Tax avoidance (tax planning we prefer to call it). Remember this is #Election2015 coming up on 7 May 2015.
So HSBC bank (more specifically the Swiss subsidiary of their Private Banking arm) got themselves into difficulty over the past couple of weeks with the BBC Panorama programme revelations as reported by Richard Bilton.
Accused of large scale collusion on tax avoidance or even evasion practices, the liberal and politically left leaning media in the UK have quite rightly got themselves embroiled in a multi-layered debate from both tax avoidance and the morals thereof to standards of editorial judgement, when corporate advertisers are the subject of negative headlines (the Daily Telegraph).
However, to grab a headline back for ourselves (and balance the debate):
“Britain, wake-up, you are a corporate TAX Haven” and to cap it off, you are not that popular with other higher taxing G8 jurisdictions.
The overall corporation tax environment in the UK has significantly improved if you are considering a Foreign Direct Investment (FDI) route into the UK over the life-time of this last Conservative-Liberal Democrat led parliament.
With corporate tax rates for both small and large enterprises almost aligned at 20% and 21% respectively from April 2014 onwards, for net profits assessable to corporation tax, the UK is one of the lowest corporate tax regimes in the G20 club.
What are the implications of this?
More FDI is attracted to the UK and therefore the potential to create more jobs and reduce the dependency on government handouts reduced.
What has not yet happened though, is that the tax receipts from corporations subjected to corporation tax in the UK increased significantly. This is partly due to timing issues; Capital and Investment allowances reducing the overall tax take and further aggressive tax avoidance activities by these Multi-National Corporations (MNC).
On the whole the average effective corporation tax rate actually paid in the UK is therefore less than the 21% head line rate for large businesses with profits over £300,000. This is due to the cash tax rate paid by corporations being reduced by capital allowances and research and development credits bringing down the effective rate paid as a percentage of the net profit assessable to corporation tax to well below 21%. These legitimate reductions are known as reliefs.
PwC put together a league table of effective (most attractive to least attractive jurisdictions on that is called “international tax competitiveness”. In 2014 the UK ranked 16th, with only Ireland and Denmark, (two fellow EU member states) beating the UK from the EU member state block.
We will continue to develop this theme over the next few weeks leading up to the general election in the UK.
We are picking up on a theme we have been experiencing and confirmed by this HBR article published in 2012:
Job and Career seeker’s unfulfilled EXPECTATIONS
The word expectation has several meanings, amongst them words like hope, belief, prospect and even probability. It is interesting that if you were to consider these four other words it is almost a continuum, stretching from the vague hope frontier and uncertainty right through to probability which is calculus driven and at least more certain statistically then mere hope…
However, the real focus of our analysis today is the mis-sold or rather mis-aligned expectations gap.
Factors driving the Expectation Gap in our opinion include:
A lack of understanding and appreciating decision-based risk
We will begin to unpick each one of these factors or drivers (reasons why) in a multi-part series of articles to see how, why and if we can help ‘plug the Expectations Gap’.
Today we will begin to briefly cover the top item on our list:
Disruptive Technologies versus Organisational Structure and Strategies
Agile and Adaptive seem to be the new buzzwords in the corporate planning landscape and lexicon. But how do we change entrenched processes and ways of working to align to an agile and adaptive mindset?
Let us turn to certain inhibitors first. Processes like preferred supplier lists, supply chain or other framework procurement agreements, Service Level Agreements and other longer-term contractual arrangement all help create the illusion of certainty and stability; yet are they? Sometimes this flies in the face of agile and adaptive planning and operational processes.
Maybe the gap exists between a process reality and a mindset aspiration. Flexible organisational structures, including resource pools like labour still have a long way to “move” in order to create the conditions in which agile planning and aligned to adaptive process realities.
How are our own personal aspirations and understanding of the current market aligned to the Shamrock Organisation mindset?
In part 1 of this article we focused on the economic cycles and the underlying drivers for future Moral Hazard risks.
In today’s edition we will dwell a little on the revelations2014 brought about in a series of disclosures and financial regulatory deals concluded. As Tony Robinson put is so eloquently in a recent Twitter feed: “In 2014 £1.4bn in financial penalties were paid by UK financial institutions. whenever has a legitimate industry acted so lawlessly?“
What we notice is that only the financial institutions (and consequently their customers) bore the fines, no individual has yet been brought to justice and account for the near fatal financial collapse he 2008/9 Financial Crunch brought about. Yes, individual traders who acted recklessly and outside of the bounds of their remits within financial organisations have been brought to account, however, the scale and ferocity of the collusion by Forex traders, the Libor scandal, PPI mis-selling, etc., etc., has yet to yield individuals sanctioned and barred for ever acting as officers and employees of these large financial institutions. Do the regulators and law enforcers and criminal justice system believe that the market will be protected by not taking appropriate action? The longer we leave punishment and sanctions off the agenda, the more urgent the growing threat for Moral Hazard PLUS will be.
Therefore, we have now had and will no doubt continue to have revelations drip fed to the consumer masses, but more importantly will we take the necessary steps to mitigate individual Moral Hazard risk, as a lot has already been done to tighten and improve regulation at the institutional level?
This is the biggest and most burning question we believe drives Moral Hazard PLUS today and not the near term future.
In the concluding part of this article we will wrap things up by concentrating on large scale corruption and unpunished collusion that fester and provide fertile soil for Moral Hazard PLUS to continue to grow and exist.
As a behaviourally focused economics publication we have been very quiet and inactive during 2014. A year of reflection and introspection, however, we are ready to resume service, with vigour. And what better way to start than with a reflective piece and thoughts on the biggest risk we believe are developing under the surface without warning. Our concluding theme of 2014 is that of moral hazard.
As Margaret Thatcher once said: “There is no society”; we state today that there is ‘No Moral Hazard'; in fact there is only Moral Hazard PLUS.
We believe that there is a strong correlation between QE (Quantitative Easing) and economic moral hazard developing a new strain, mutating like an unseen virus.
QE might have saved the financial system of the developed world, but it it only provided a shot in the arm and acted as a stimulus for sustaining moral hazard.
Economics follow a flow and cyclical pattern, as discussed in our article entitled ‘Information Age Irony‘. These patterns and flows weave themselves into the fabric of our lives and affect individual economies in different ways.
It is important to understand where and how economic cycles develop and flow and how much influence they have on our general economic activities on a day to day basis, but we should not become overly obsessed by them, as they can be short-circuited from time to time by policy and policy-maker’s actions, wherever individually or collectively.
In part 2 of this article we will focus on the revelations of QE and the underlying threat of moral hazard returning on a grander and more catastrophic scale, if it goes unchecked and misunderstood.
The US Debt default that is looming ever larger with each passing day that the US Congress, Senate and White House seem to treat as a brinkmanship fatigue challenge will have a specific default structure or process attached to it, that the rest of the world needs to get to grips with very quickly.
What are the consequences:
Because, if Americans are willing to engage in quasi-negotiations with each other on this acrimonious level; then world beware, they will treat you with even more disdain and petulance than they have been treating each other.
And yet, no Creditor Nation of the USA seem in the least bit prepared for the hard bargaining the USA Treasury officials will engage in when the technical default moves into a more serious phase.
This is commercial war on a scale we have not experienced for quite some time.
And the most disparaging part of this process or potential risk is that no commentator has yet stood up and called time on this challenge or at the very least attempted to pull the veil from the threat and fall-out the rest of the world will experience.
Of course 17 October 2013 is a technical default breach days only; because as most business people who experienced bankruptcy will attest to is the fact that you can continue to trade (on the goodwill of your creditors) beyond the point of being solvent, so long as those creditors continue to good-naturedly extend some further credit or payment terms to you.
What can clearly be observed from the Yield Curve for Treasury Bills (T-Bills) dated 30 days is that the spread between 30 September 2013 (at 0.10%) to the rate at 11 October 2013 (0.26%) has significantly increased and that the Yield Curve has become inverted. Normally the sign of a recession or other financial calamity to come.
Will Thursday 17 October 2013 be D-Day (for Disaster or Domino-day) when the whole lot starts tumbling down again?