Strange news: tax avoidance and offshore dealings

[ds1984]

Funny to hear complain from the US tax system at a time when in my country as rich celebrities or anonymous are settling outside to avoid to pay taxes in their own country...

[stormbreaker]

"We don't pay taxes. Only the little people pay taxes", the super-rich Leona Hemsley is reputed to have said. Read about her here:-

http://en.wikipedia.org/wiki/Leona_Helmsley

OK, she was done for tax evasion (an illegal activity) not tax aviodance (which is not illegal) but some of these tax avoidance schemes, as I said before, seem artificial to me. If they were clearly illegal, the authorities would have gone after them but, if they are on the borderline between tax evasion and tax avoidance, then it is difficult to pursue a case. Some tax jurisdictions are opaque.

I was aware that U2 transferred their companies to the Netherlands to save tax and it caused a lot of animosity in Ireland at the time. I seem to recall that the Rolling Stones, having sold tickets for a concert in the UK, then postponed it (to another tax year, I think) because they gained a tax advantage by doing this.

As is well known, Amazon and Google minimize their tax bills by routing their money through Luxembourg. Yes, they pay some texes in the UK but not as much as they should if they had not set up elaborate corporate structures deliberately to reduce their tax liability in the UK. No wonder smaller UK-based companies cannot compete. It is not a level playing field.

No one should pay more in tax than is required of them and I'm sure that MK (and other very rich people) pay large chunks of money in taxes to the Exchequer but that doesn't absolve them from having to pay more if it's due.  People who advocate a fairer, more just and more equitable society should not set out, by artificial means, to minimise their contribution to that society.

I am no revolutionary but please be clear - you and your families, even your elderly grandparents, pay more in tax than would otherwise be the case because large corporations and wealthy individuals use clever devices to keep their taxes down.

She has been born in Marbletown. Is Knopfler's Marbletown about her?

[vgonis]

In Greece we all know by now that such "leaks" are just a smoke screen. The government is in position to know anytime, but refuses to do so, in order to incriminate the average citizen and hold them by the balls anytime they feel like doing so, especially when they try to hide their dirty dealings. And yes, the wealthy are left with loopholes to tax evade.

[Rail King]

While I do understand people who try everything legal to avoid taxes (or have accountants do so), there's no excuse for tax evasion in my opinion. In a democratic country, the tax system - however flawed it may be - was established by the people's will. If you don't like, try to change it - or go someplace else.

The whole issued could be fixed, by the way, if all taxes where replaced by one single consumption tax (VAT). With that, whoever spends more money (the rich) pays more - and vice versa. It's the most simple and fair tax system of all.

[superval99]

Tax avoidance and tax evasion are not the same thing.  Tax avoidance is legal, tax evasion is not.

For example, in the UK many ordinary people have ISAs which are perfectly legal and there are many other legal ways of paying less tax!   

[vgonis]

VAT is deemed as one of the most unfair taxes of all. The reasoning is not very complicated. Every person has to pay for the essential (food, clothes, health, education, rent etc). Rich people have to pay for the same essentials. Paying for luxuries (fast car, hi-end systems, boat, luxury housing etc) usually has a higher VAT rate, but then again creating an off-shore, or creating a company to lease the house/cars etc, etc, is a way to tax evade or avoid, that is commonly used. The fact that only people with a certain income can afford to use the laws and avoid paying taxes creates on its own a very big inequality. It means that the rich can enjoy their money without paying the equivalent tax, while paying the same VAT  for the essentials. (if that, since they can write them off as expenses and get a VAT refund).

[twm]

Let me start by saying that VAT is what is known as a regressive tax - in other words, those who earn less have to pay a higher proportion of their earnings in VAT than those who earn more.  Those who earn more may pay more VAT as an absolute sum but it is generally a lower proportion of their earnings.

That said, VAT is paid out of earnings that have already been taxed (either in the form of income tax, social service charges and the like) and, generally speaking, those who earn more pay more in those sort of taxes. It varies, I know, but I'll leave that as a general statement.

I think it was  vgonis who referred to VAT being applied to food. That is not generally the case in the UK,  where most food items are zero-rated (that is, VAT technically applies but it is set at 0%). I will try to explain this, as it is quite complex. I may get the technical details wrong but this is what happens.

Having a VAT system is a requirement of EU membership. In  the United Kingdom, we had a system called Purchase Tax - the title sounds the same as VAT but was, in fact, different. I won't bore you with the details. When the UK joined the EU (as it's now known) Purchase Tax was scrapped and VAT was introduced.

VAT rates here have changed over the years (sometimes going down, even) and the range of goods/services covered has also changed (or been subject to redefinition as products have developed - for example, books and maps are zero-rated but e-books are subject to the standard rate of VAT) but there three rates of VAT permitted under EU law.

(# 1) The standard rate of VAT applies to most goods and services and the minimum allowed in Europe is 15%. In the UK, the standard rate is 20% at present. In addition, each EU country can have up to two rates of VAT lower than the standard rate for a limited range of goods and services.  In Britain, we have two lower rates of VAT.

(#2) There is a range of goods and services on which VAT is at a reduced rate of 5% (such as domestic energy and certain, what I shall call, health-related products).

(#3) We have other goods and services on which the VAT rate is set at 0%. These include:  children's clothing, public transport tickets, domestic water supplies, some safety equipment, very large manufactured products (such as aircraft and ships) and most foodstuffs. 

I should add that some foodstuffs are chargeable at the standard rate of VAT (that is, at 20%). These include ice cream, chocolate-covered biscuits, chocolates, sweets (candy for those across the water), fruit juice and bottled water, amongst others. I supposed these are regarded as "luxuries", though I would dispute that in some cases.

In addition, there are goods and services which are regarded as "exempt" from VAT (such as educational services, health services, finanacial services, postage stamps, and tickets for concerts and other "cultural" activities).

Then, there are activities regarded as "outside" the VAT system, including goods and services supplied by people or organisations that are not registered for VAT. The latter include small businesses where the turnover is less than

[vgonis]

Thanks twm. As you correctly mention, each country has its own set of rules regarding VAT. Here in Greece books, children clothes and food all get VAT (from 6%-23%). Generally, things that are considered luxury are getting the higher tax rate, while in other cases two sets of VAT can be applied. (If you buy for take out,it is 13% but if you  sit at the restaurant-cafe it is 23%). Tickets for museums, stamps and postal services are exempt from VAT, but are rare examples.

[twm]

There is an interesting side to the UK's old Purchase Tax system that preceded VAT - and it had an effect on a record release just a couple of years ago. But let's go back to the start.

Back in the days of Purchase Tax, so-called luxury goods (jewellery, for example) were taxed heavily.  The Purchase Tax on LPs was 40% but there was an exception. If an LP was pressed in low numbers, there was no Purchase Tax. I think it was for "up to 100 copies" manufactured. Anyway, Dylan (under the pseudonym Blind Boy Grunt) contributed to a small label LP recorded in London in January 1963. The label pressed the  LP in a small quantity but sold the LP at more or less the normal price for an LP. This allowed an otherwise uncommercial LP to be financially viable. What the label then did was a bit dubious. When the first run of LPs sold out, they pressed another small run and sold these. By my estimate, they did this at least seven times!

Now let's move forward to a couple of years back.

The EU had changed the copyright laws. I believe that the Sony Music executives in New York didn't really understand the details of the new EU law but that's another topic. They saw Dylan's 1961 recordings seemingly go out of copyright and being released by all sorts of record companies in Europe, so they decided to do something about it. What they did was to release Dylan's 1962 recordings - those that had not been released before including some not previously available to collectors - and called it the "50th Anniversary Copyright Extension" collection. They issued this as a set of CD-Rs available in Europe but only made 100 copies. In my opinion (and the opinion of others in Dylan World), this did not constitute a "release" under EU law, so why did they choose 100 as the minimum quantity? My understanding is that they listened to someone in Britain who remembered that small label LP with "Blind Boy Grunt and the old Purchase Tax system, and advised that 100 was the minimum number to make the release. Apart from the quantity, there was also the question of whether CD-Rs was a good enough standard for a release.

Similar releases in subsequent years have been in the form of vinyl LPs and in greater numbers - still not large numbers. The most recent box-set (for 1964) had 9 LPs and was quite pricey, even if you could find it to buy. Goodness only knows what they'll do next, as there are so many Dylan recordings from 1965 that have not been officially released.

[Pottel]

the UK childrens' clothing VAT being zero only applies to clothing up to size 146 (textile size meaning 146 cm) as of that and upwards, VAT does apply at a higher then 0% (forgot what though)
same thing is the case in luxemburg (different% values, but same princuiple)

[dustyvalentino]

Good to have a few accountants on the forum.

[vgonis]

So twm, the law for 50 years is still under dispute for Europe? I know that in USA they have raised it to 70 years and with the Sonny Bono clause up to 100! And since this was not in retrospect, new music will be in public domain after 2023, again.

[twm]

First - I am not an accountant and never have been.

Second - I'm not saying that European copyright law is in dispute, only that I don't think Sony's U.S. lawyers fully understood the European law, certainly back in 2012 when they first had to address it.

Moreover, it is pretty clear that the decision to "release" those 1962 recordings was made very late in 2012 - possibly as late as December - and they had to get those recordings "released" by the end of December that year.  It was all done in a great rush. I have heard this from more than one person involved in the process and there is evidence of this within the content of discs - errors made in the selection of the "takes" for the set, for example. The error about the number of copies to be manufactured and released (and I do believe it was an error) was just part of it. The whole thing was done so hurriedly that mistakes were almost inevitable.


P.S. I am also not a lawyer and never have been.

[Jules]

In Spain culture (music, cinema, theatre...) pays a 21% while porn vat is very lower, what means that is more expensive to see a play than a stripper. That's the kind if country we are.

[dmg]

In Spain culture (music, cinema, theatre...) pays a 21% while porn vat is very lower, what means that is more expensive to see a play than a stripper. That's the kind if country we are.

I don't see the problem.