Sentiment
This is our first newsletter since the summer break, and I am delighted to welcome back my daughter Lara Saunders after her maternity leave….. and to thank her for making my granddaughter Lila the most beautiful and loveable baby that ever existed!
Six months ago at the height of the recession, with the London stock market falling to 3500, I exhorted readers to decry the universally pessimistic attitude that was prevalent at the time. After all, I suggested that if worldwide consumer demand was maintained, this coupled with historically low interest rates would provide a continued stimulus to economic growth. Companies had already taken the opportunity of shedding unwanted overheads, unfortunately particularly staff, and consumer demand would lead to restocking of products for consumption.
Six months later, with the London stock market veering towards an inversion of figures to 5300, I would nevertheless caution against a too optimistic view of the current level of the economy. Economic growth can only flourish in a market where both savings are encouraged and investment opportunities abound. Maintaining low interest rates only encourages investments if banks will lend relevant funds, but of course they discourage savings. What is more worrying is that governments (particularly the UK one) are taking the view that they ought to increase taxation to meet the cost of providing public services which the government can no longer afford. But raising taxes does not contribute to economic growth, it is merely a shifting of wealth from the private to the public sector. In the absence of absolute growth in the economy, this will inevitably lead entrepreneurs to question whether it is worthwhile to make relevant investments.
During the last six months, I have seen many clients who are indeed asking this question, some of whom are moving their personal residence and some of whom are moving their corporate residence, or at least the centre of their corporate activities. Dis-incentivising the wealth makers historically leads to a weak economy, and at this stage of the economic cycle, this would be disastrous. For those who remember the 98% maximum rate of income tax under the 1964/70 Harold Wilson government, this started the first of the ‘brain drains’ from the UK. By contrast, and assuming that sterling is a measure of the strength of the UK economy, the more relaxed tax regime in the 1979/90 Margaret Thatcher years created a strength against other currencies which had not been seen for decades (sterling against the dollar was $2.80 to the £ post-war until 1965 and then retreated dramatically to $1.30 until it advanced through the 1980’s and 1990’s to $2 until 2007 since when it has fallen again, particularly this time against the euro). The connection between currency strength and taxation seem obvious, but seems to be ignored amidst the political concerns of how to pay for our public services.
Some more statistics to prove the point. From a base of approximately 35% of GDP in 1980’s, tax revenue has now risen to over 40% in the UK, and even higher figures up to 50% are relevant for such socially aware countries as Denmark, Sweden, Belgium, France, Finland, Norway and Austria. Contrast this with 33% in Canada, 30% in Australia, 28% in the US and 27% in Japan. Is education far inferior in those countries, or medical assistance (despite the furore currently raging in the US), and are these countries defenceless when threatened? Or is it simply that GDP is much higher per capita in these countries than in others? Have their tax policies been instrumental in creating a stronger GDP than in other countries?
The public should be encouraged to focus on the correlation between high taxation and economic strength (which itself allows for greater social services). The last Royal Commission on taxation was in 1957, over half a century ago. The world is a very different place nowadays than it was then, and it is time that another Royal Commission was created. Rather than tinkering with the existing tax system through stealth taxes and additional percentages, the entire tax system needs to be reviewed. Specific taxes for specific public services will provide greater accountability in ‘balancing the books’, and avoid the enormous waste of public money that quangos and other government bodies spend out of the general public finance. Wouldn’t it be great if the tax system could again be the impetus for economic growth? Perhaps UK residents would not find continental Europe such an expensive place to go for their holidays, and perhaps UK entrepreneurs would consider staying put!
ITSAPT PROFESSIONAL ASSOCIATION
I thought I would use this newsletter to introduce a new Association that I have created. The acronym ‘ITSAPT’ stands for ‘International Tax Systems & Planning Techniques’ which is a 1,000 page loose leaf work that I first wrote in 1983. Since then, it has had 57 releases, i.e. just over two a year, and it covers the tax systems of over 30 countries. It is the only international tax reference work that has been written by one individual, but I have to admit that the task of keeping the book up to date was too much for me and I relinquished sole responsibility for the book after the first 10 years. Since then, I have asked tax specialists in various countries to assist me with updating the chapters, and indeed some new ones such as Russia, India and South Africa have been added. It is these specialists that I have invited to join the ITSAPT Professional Association, along with other specialists from countries that are not currently included in ITSAPT (such as Brazil and China) which I intend to include in the new work.
The New ITSAPT
After more than 25 years, and in a very different world of international tax than in 1983, I have decided to revamp ITSAPT with a new format. My publishers, Sweet & Maxwell, have suggested that a loose leaf work is now less popular than hitherto, and the new ITSAPT is to be published as a bound book every two years, the first edition being published in 2010. In the intervening years, a small booklet will be published with major changes to tax law in the countries covered.
Lara will be primarily responsible for editing the new book, collating the various chapters and working with contributors to ensure that the original concept of ITSAPT is maintained, i.e. a comparison between countries of specific provisions which may not yet be within a particular country’s legislation, but which could be considered as possible future changes in that particular country.
For those of you who are familiar with the Polycon Lens Company (PLC), this will continue as Part A of ITSAPT, but brought up to date as an internet company which is now considering its involvement in renewable energy. Part A traces the development of PLC from an initial domestic base to the creation of a worldwide international structure through both manufacturing and sales subsidiaries, using overseas holding companies where relevant. The acquisition of further companies and the financing thereof is a feature of the development of PLC, which then uses its profits to invest in real estate internationally, set up licensing and franchise operations for its products and finally become a major worldwide name. The tax issues that are relevant throughout its entire growth over the same 26 years that ITSAPT has been in existence are then cross-referenced to relevant chapters within Part B of the book, explaining the planning techniques that are relevant for the various stages of PLC’s development.
Part B covers the tax systems of the following countries, not only from a corporate but also a personal tax position, and specifically with regard to investments by domestic residents outside of their country, and also investments by foreign entities and individuals into domestic ventures. Primarily, therefore, the book centres on cross-border transactions, although significant domestic tax information can be gleaned from specific sub-sections of each chapter. It is these sub-sections that we have revamped for each country, as well as adding new countries which ITSAPT needs to include if it is to be useful for professional advisors in the 21st century. I hope that you will be interested in at least one of the following countries covered:
Australia, Austria, Belgium, Brazil, Canada, Channel Islands, China, Cyprus, France, Germany, Gibraltar, Hong Kong, India, Isle of Man, Israel, Italy, Luxembourg, Malta, Mauritius, Monaco, Netherlands, Netherlands Antilles, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Ukraine, United Kingdom and United States.
The ITSAPT Professional Association
So what is the Association about? There are many networks of lawyers and accountants who claim to be able to provide comprehensive international tax advice, and many do amongst their many qualified colleagues. The problem with a network is that it is only as strong as its weakest link, and my aim in creating The ITSAPT Professional Association is to avoid any weak links, and to ensure that each individual is highly qualified to provide international tax advice to IFS clients. There will be a link on the IFS website with the co-ordinates of all Associates, and I am only too happy for readers of our newsletters to contact these individuals direct if they require specific advice about a particular country, instead of having to come through IFS and increase the professional fees their own clients have to incur.
Additionally, I plan to have an annual conference of ITSAPT professional associates, probably in London, and this conference will address current issues affecting international tax structures. If you would like to receive information concerning these forthcoming conferences, please click here. The first conference is unlikely to be until the last quarter of 2010, by which time the new ITSAPT will be published.
Finally, now that we are all back at work after the summer recess, I sincerely hope that all readers of our newsletters enjoy a more stable environment in which their businesses and practices flourish in the coming year. Lara and I really look forward to working with you and hope that we can assist you in achieving your goals.