Wednesday, May 29, 2013

Rising cost of living drains retirees' savings - Telegraph


Inflation and debt have eroded over-55s' savings by 33pc in less than a year, draining their potential pension pot.

Old couple working in burger bar (cartoon)
Over 55s have been warned that they will struggle in retirement as the cost of living erodes their savings pot Photo: HOWARD McWILLIAM
Over-55s have been warned that they will struggle in retirement as the cost of living erodes their savings pot. According to the Aviva Real Retirement report, those approaching pensionable age have mounting debts and dwindling savings thanks to the rising cost of housing, food and public transport.
But all is not lost – a bit of foresight now could save these pensioners-to-be from poverty. As the report reveals that the over-55s have seen their savings fall from £18,364 last September to £11,763 today, experts are urging workers to start proper retirement planning to protect themselves and their pensions.
The Aviva report, out today, found that in the past year over-55s have had to make sacrifices in order to afford the rising cost of essential items. They have cut spending on everyday luxuries such as clothing, furniture, leisure goods and pet care.
Despite these cutbacks, those aged over 55 are struggling to meet monthly debt repayments. According to the report, unsecured debt among this age group has risen by 36pc in just two years – they now typically owe £23,188 in personal loans and credit cards.
More worryingly, those approaching retirement shoulder the majority of the unsecured debt. At a time when they should be paying as much as possible into their pension, borrowers aged between 55 and 64 have seen debts on credit cards and personal loans rise by £6,752 in two years.
Clive Bolton of Aviva said that for many people short-term borrowing was a necessary step to manage living costs – but when daily outgoings were stretched by the demands of basic essentials, they could find regular repayments difficult to maintain.
In order to meet these debt payments the over 55s are plundering their savings. The average savings pot for that age group is £11,763 – down by a whopping 36pc, having peaked in September last year at £18,364.
The most significant reduction in savings was among those in the first decade of retirement, whose pot has halved over the past 12 months as living costs escalated.
While those still in work have seen incomes typically increase by £166 a month, those aged between 65 and 74 suffered an £18 loss of monthly income in the past 12 months, while the typical over-75 in May 2013 survives on £109 less each month than they did last year.
This is due to ever decreasing returns from savings and investments. Only three in 10 over-55s now rely on the income generated by savings and investments – instead having to plunder capital.
Instead, personal pensions are making up the difference – and wages for those who choose to work past retirement age. In fact, among the over-75s incomes have risen.
Retirees looking to boost their incomes could consider releasing equity from their homes, as well as income-paying investments such as corporate bonds.
Angela Seymour-Jackson of Aegon said the crucial advice to avoid pensioner poverty was to act fast.
“Younger respondents are more at risk of a retirement crisis than any generation that has gone before," she said. "They are increasingly becoming aware that they will have to start planning for the possibility that they will need to support ageing parents, themselves and their children in later life.
"This ‘squeezed generation’ is most at risk of stumbling into an impoverished retirement if they don’t act soon. Longer life expectancy, lower pension contributions, reducing state support and increasing financial dependency from family members makes planning for retirement all the more important."
She advocated that younger workers enrol in their workplace pension scheme in order to benefit from company and government contributions.

Friday, May 24, 2013

Grant Thornton: Firms crave tax guidance

Published: 25 May 2013 at 00.00

The vast majority of businesses would welcome more global cooperation and guidance from tax authorities on what is acceptable for tax planning even if this provides less opportunity to reduce tax liabilities across borders, notes the latest Grant Thornton International Business Report (IBR).

The IBR, a quarterly survey of more than 3,000 businesses in 44 countries, found that globally, 68% of businesses would like more tax guidance.
However, there was a marked divergence between regions, with 75% of euro-zone businesses eager for more guidance compared with just 54% of their North American counterparts.
Thailand clocked in at 74%, reflecting the higher Asean average of 86%, while 85% of Latin American businesses will likely look for advice compared with 67% of their Asia-Pacific peers.
"Reducing liabilities across borders can offer significant tax savings, so it is interesting to see how open business leaders are to improving guidance and global cooperation. There were recent high-profile cases involving Amazon, Google and Starbucks that certainly sharpened public opinion as to what is acceptable tax planning. As the Asean Economic Community draws closer and regional supply chains mature, this will become increasingly relevant in our region," said Edward Strauss, a partner in Grant Thornton Thailand's tax consulting wing.
Global bosses were more critical than Thai business leaders of what the tax regimes in their economies are set up to achieve, with just 31% globally saying their local tax laws and policies are geared to stimulate economic growth.
In Thailand that figure was 58%, still short of the Asean average of 70%.
Senior executives in Southern Europe averaged 11%, while in Latin America only 23% approved how their tax dollars are being spent.
Some 49% of business leaders globally and 46% in Asean believe their current tax regime does not bring enough economic participants into the tax base.
In Thailand that figure was 30%, which while lower than in other regions, still suggests about one-third of businesses would like to see a broader tax base in Thailand.
Thailand is in the top 10 of countries that believe their tax regimes are redistributing wealth efficiently, with only 10% of businesses disagreeing with that statement. This differed greatly from Asean at 39%, while globally only 41% of businesses believed their tax regimes are heavily weighted against the redistribution of wealth.
"Many mature economies around the world are undergoing severe fiscal retrenchment, and business leaders are seeing taxes rise even as growth remains flat. The good news in Thailand is businesses are broadly supportive of the way that taxes are distributed and spent. With the reduction in the corporate tax rate coupled with reasonable growth, we are fortunately in a very different position," said Mr Strauss

Ed Miliband says Google and Apple as bad as banks




Ed Miliband has launched a stinging attack on global businesses including Apple and Google, comparing their behaviour to that of investment banks Goldman Sachs and Lehman Brothers.

Ed Miliband says Google and Apple as bad as banks
Ed Miliband attacked global business for not paying enough tax Photo: PA
Speaking at Google’s Big Tent conference in Hertfordshire, Mr Miliband claimed that major businesses with low tax bills - such as Google, Apple, Amazon and Starbucks - shared a culture of irresponsibility with the banks that caused the global financial crisis.
“I have deep problems about the culture and the culture isn’t that different from what we saw at some of the banks,” he said. “There is a culture of irresponsibility among some of the biggest firms and that’s got to change. We can’t lecture people on benefits if some of the biggest companies are sending the wrong signals.”
In a speech that at times seemed to attack capitalism itself, Mr Miliband said, “If capitalism is here to stay, are there any choices left to us? Is it just capitalism?
"My answer to that is no. We do face a choice between an irresponsible capitalism where irresponsibility grows and where we’re in it for ourselves. Or where we all face up to our responsibilities and to the world. That’s the big choice we face.”
He also argued that the nature of the internet would lead to more responsible business, but added it could create new vested interests that governments should not be afraid to tackle.
Mr Miliband also called for more nimble regulation at a European level, reiterating his call for a ‘Digital Ombudsman’ to regulate potentially anti-competitive businesses, and added that capitalism “should be about more than adhering to the letter of the law”.
He said he was sorry that Google’s executive chairman Eric Schmidt wasn’t in the audience to hear his speech, and attacked David Cameron for not raising Google’s tax rate with Mr Schmidt, when they met at a No 10 event on Monday.
However, today Deputy Prime Minister Nick Clegg said he did directly raise the issue with Mr Schmidt at the event, telling him there was massive public concern "as Google are finding out" that, at a time of austerity for ordinary households and businesses, big companies should pay their fair share of tax.
The Labour leader used Google’s platform to quote back their own slogan, ‘Don’t be evil’, and quoted from the letter that founders Sergey Brin and Larry Page wrote to accompany the 2004 flotation of their search company.
He claimed they had abandoned their original commitment to forego short-term gain in favour of a complex tax structure that saw them pay less than one per cent tax on their UK business.
Mr Miliband also claimed that individual countries should be more aware of their own value to large corporations. “There’s one school of thought that says companies can go where they like. I don’t think Google’s about to leave the country. Governments have more power than they realise but of course they’ve got to work internationally."
He added that customers can also exert commercial pressures, alluding to the example of Apple improving working conditions in factories its suppliers use after widespread public attention.
Reaction to the speech at the conference was mixed. While some delegates hailed a leader who was prepared to take on a moral issue, many questioned what “teeth” were available in a global marketplace, and asked whether a digital ombudsman, quickly dubbed “the internet sheriff” was a practical idea.

Thursday, May 23, 2013

BBC News - Republic of Ireland calls for international tax action

22 May 2013 Last updated at 13:59 GMT


Apple has been criticised for funnelling profits through its Irish subsidiaries

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A Republic of Ireland politician says the international community must work together to stop large multinational firms using cross-border tax loopholes.
"They play the tax codes one against the other," Enterprise Minister Richard Bruton told national broadcaster RTE.
"That is tax planning and I think we do need international cooperation through the OECD to deal with the aggressive nature of that."
It comes as EU leaders meet in Brussels to discuss tackling tax avoidance.
UK Prime Minister David Cameron and others will be looking at ways of cracking down on those who do not pay their fair share of tax.
Mr Cameron will urge EU leaders to back global action against tax evasion and "aggressive" tax avoidance that is causing nations "staggering" losses.
Danny Alexander, Chief Secretary to the Treasury, told BBC' Radio 4's World at One programme that tackling the issue was a "central priority" for the UK's presidency of the G8.
And Ireland's Taoiseach Enda Kenny is likely to face a tough time at the summit amid accusations - both overseas and within Ireland - of a loose tax regime.
'Tax haven'
The meeting comes as Apple is under fire over its tax use of Irish subsidiaries.
On Tuesday, Apple's chief executive Tim Cook appeared before a Senate committee for a grilling over the firm's tax arrangements.
Earlier, the head of a Senate committee panel had accused Apple of "exploiting an absurdity" in its tax payments.
Apple had been accused by the Senate Permanent Subcommittee on Investigations, which has been examining "methods employed by multinational corporations to shift profits offshore", of being "among America's largest tax avoiders".
The panel revealed Apple had paid just 2% tax on $74bn in overseas income, mainly by exploiting a loophole in Ireland's tax code.
And in a 40-page memorandum, the Senate committee said: "Ireland has essentially functioned as a tax haven for Apple."
But Mr Cook told the panel that a "dramatic simplification" of US tax laws was required, and said the firm believed that reform should be "revenue neutral".
'Disappointed'
As well as Apple being in the spotlight in the US, other large American firms such as Starbucks, Google and Amazon have come under fire from politicians in the UK for their tax arrangements.
"I think these cases which were widely reported clearly demonstrate weaknesses in the corporate taxation situation internally and at EU level," said EU Tax Commissioner Algirdas Semeta.
Google's UK sales are worth £3.2bn, but most are routed through Ireland, meaning it paid £6m in corporation tax in 2011.
On Wednesday, the internet giant faced fresh criticism from Labour leader Ed Miliband.
"I can't be the only person here who feels disappointed that such a great company as Google... will be reduced to arguing that when it employs thousands of people in Britain, makes billions of pounds of revenue in Britain, it's fair that it should pay just a fraction of 1% of that in tax," he said.
The Google chairman Eric Schmidt said his firm was complying with tax laws, but he said it was not companies but governments that decided tax regimes.
He said Google was "absolutely following the tax laws of the countries we operate in".

How Apple's offshore tax mess could impact your business | PCWorld



Apple, that darling of the tech world, has been in the news this week, not because of any new hardware it's releasing, but because of the way it's been handling its foreign earnings.
Dragged before the U.S. Senate, CEO Tim Cook was excoriated over allegations that the company is using an Irish subsidiary to avoid billions in taxes. Cook has denied the charges, saying, "We pay all the taxes we owe—every single dollar."
And Cook is right. In simplified terms, Apple is a huge, multinational corporation, and it earns plenty of its money overseas. When you sell a product in Europe and leave the money you received for it in Europe, different rules apply, and the country in which the sales took place essentially gets first crack at the cash. As a U.S. company, you often don't have to pay tax until you repatriate the earnings by bringing them back to the homeland. The Senate would greatly prefer this not to be the case, though: Apple has $102 billion sitting in foreign accounts that would amount to over $35 billion in taxes if the earnings were repatriated. In comparison the company has only about $43 billion in its U.S. coffers.
Apple isn't playing ball, and it doesn't have to. The law provides for offshore earnings to be treated this way, and Cook explained that it's his duty to Apple shareholders to keep the tax bill down as much as is (legally) possible. Meanwhile, he noted that Apple is America's largest taxpayer. (Cook's endgame is ultimately to work a deal so that Apple gets a break on those taxes should the earnings eventually be repatriated.)
To be sure, the Ireland strategy is a little unsavory, involving five companies with the same address, some of which are managed by non-Irish residents. In a nutshell, this means these companies are neither based in the U.S. nor Ireland, an "absurdity," as Senator Carl Levin pointed out at the hearing. And yet, it's legal. At least for now.
Apple isn't alone in all of this, and offshore tax strategies have been a hot topic on Capitol Hill for years, particularly with tech companies that make sales all over the world. Google, for example, recently stashed $10 billion in Bermuda, which saved the company $2 billion in taxes in 2011.
So why can't your business do it, too?
Like it or not, globalization is a real and growing phenomenon, and even small businesses are starting to wise up to the realities of how out-of-country sales can be managed and the vagaries of both domestic and foreign tax codes. In fact, if you want to get in on this offshoring business, it's something you might be able to do as well.
What you need to get started is a foreign subsidiary*. You'll want to set this up in a low-tax region like Ireland or Belize (there are businesses out there than can do this for you), and channel any sales you make overseas through this holding company. You can leave it there (where it is technically "tax deferred") or claim that it is going to be "reinvested" overseas, which allows it to be taken off the books. Use the funds to make acquisitions, buy inventory that's later going to be sold offshore, or simply hold it as working capital.
You can even get this money back into the U.S., like HP did, by making short-term loans to your U.S. self, or simply by waiting for a "tax holiday," which the U.S. government has offered to discourage cash from being hoarded offshore. In 2004, the U.S. briefly cut the repatriated earnings tax rate to just 5%, which is likely what Cook is hoping for. Now that's a tax deal I'd take any day! (To be crystal clear: You must have an iron stomach and scads of earnings to do any of this stuff, and I'm not suggesting you even consider such a strategy without serious deliberation and very good reasons for doing so.)
Is any of this legal? Offshoring has been a gray area for decades, and as long as American corporations have their footholds in Washington, it will continue to be so. It certainly doesn't seem to be going away any time soon. So why should the big guys have all the fun?

Apple disputes claims of tax avoidance - Telegraph

10:49PM BST 21 May 2013

Tim Cook testified at a hearing by the Senate Permanent Subcommittee on Investigations, which released a damning report on Monday on Apple's tax practices.
"We pay all the taxes we owe – every single dollar," Cook said. "We don't depend on tax gimmicks."
Mr Cook, who is more accustomed to commanding a stage in front of investors and techies than facing a congressional committee, took a defensive tone with his opening statement.
"We don't move our money from our foreign subsidiaries to fund our US business in order to skirt the repatriation tax," said Cook.
Phillip Bullock, Apple's head of tax operations testified that the company's subsidiary in Ireland, AOI, received $30 billion over the last five years, but was not required to pay taxes on it in the US.
But Mr Cook said the Irish subsidiaries do not reduce the company's US taxes at all. Rather, they manage cash earned overseas. If that cash were to be repatriated to the US, it would be subject to US taxes.
Like other multinationals, Apple chooses to keep cash overseas so as not to pay the 35 per cent US corporate tax rate. Apple is holding $102bn of its total $145bn in cash overseas.
Mr Cook reaffirmed Apple's position that given current US tax rates, it has no intention of repatriating its overseas profits to the US.
Senator Carl Levin, a Michigan Democrat and the panel's chairman, said Apple's use of loopholes in the US tax code is unique among multinational corporations.
Apple uses five companies located in Ireland to carry out its tax strategy, according to the report.
The companies are located at the same address in Cork, Ireland, and they share members of their boards of directors.
While all five companies were incorporated in Ireland, only two of them also have tax residency in that country.
That means the other three are not legally required to pay taxes in Ireland because they are not managed or controlled in that country, in Apple's view.
The report says Apple capitalises on a difference between US and Irish rules regarding tax residency.
In Ireland, a company must be managed and controlled in the country to be a tax resident.
Under US law, a company is a tax resident of the country in which it was established. Therefore, the Apple companies are not tax residents of Ireland nor of the US, since they were not incorporated in the US, in Apple's view.
The spotlight on Apple's tax strategy comes at a time of fevered debate in Washington over whether and how to raise revenues to help reduce the federal deficit.

Eric Schmidt denies unethical tax affairs at Google - Telegraph



Eric Schmidt denies unethical tax affairs at Google

Eric Schmidt, Google’s executive chairman, mounted a staunch defence of the search giant’s tax affairs today, arguing it was for governments to make the laws and for businesses to abide by them.

Eric Schmidt denies unethical tax affairs at Google
Mr Schmidt reiterated Google’s view that governments had the power to set tax rates  Photo: Reuters
Speaking at Google’s own Big Tent conference in Watford, Mr Schmidt said: “I don’t think companies should decide what tax policies should be. Governments should.”
He added that he welcomed the forthcoming debate at the G8, initiated by David Cameron, and said that Google would be “completely transparent” about its arrangements.
Mr Schmidt said public companies could not try to obey “the spirit of the law” when they operated in many jurisdictions and had a duty to their shareholders. Asked directly if he thought Google’s tax arrangements were unethical he said “No”, and said Google was operating in a complex global marketplace.
“I can’t defend the international tax regime. I did not design such an irrational structure,” he said. “It would not have been designed this way by a computer scientist.”
In a tense on-stage interview, Mr Schmidt reiterated Google’s view that governments had the power to set tax rates and that the business would cooperate. “The Google view here is that taxes should not be up to Google. We are following the international tax regime.”
Asked to defend the arrangement where most of Google’s taxes on money earnt in Britain is funnelled through Ireland and Bermuda and the company pays an effective rate of less than one per cent, he said, “Virtually all of the American companies have tax structures like this. And there are analogous strucures for European companies in America. But governments have a lot more power than we do. We have to follow the law and if the law changes we will absolutely follow it.”
Mr Schmidt said Google would continue to invest in the UK because of the importance of the market, claiming at one point “We love the United Kingdom”.
Earlier in the day, Labour leader Ed Miliband had also used Google’s conference to launch a stinging attack on global businesses including Apple and Google, comparing their behaviour to that of Goldman Sachs and Lehman Brothers.
Mr Miliband said that major businesses with low tax bills, including Google, Apple, Amazon and Starbucks shared a culture of irresponsibility with the banks that caused the global financial crisis. “I have deep problems about the culture and the culture isn’t that different from what we saw at some of the banks,” he said.
Mr Miliband called for more nimble regulation at a European level, reiterated his call for a ‘Digital Ombudsman’ to regulate potentially anticompetitive businesses, and added that capitalism “should be about more than adhering to the letter of the law”. He said Google had diverged from its ambitious slogan of “Don’t be evil”.
The Irish authorities themselves have called for an international clampdown on companies shifting their profits around the world in a bid to diminish their tax bills, responding to criticism that Apple in particular used loopholes to transfer money. Google has also been condemned for claiming all its European selling occurs in Ireland.

Tuesday, May 21, 2013

BBC News - The real corporate tax puzzle

21 May 2013 Last updated at 13:36 GMT


The real corporate tax puzzle

Apple logo on buildingApple's tax avoidance schemes have angered US senators
Big internet giants like Apple are going to extraordinary lengths to minimise their tax burden, and voters and politicians are understandably excited about it. But the puzzle for economists is not that big companies now pay so little tax - but why, in a global economy, they are still paying tax on their profits at all.
When I was first studying economics 25 years ago, my teachers were all expecting corporate taxes to disappear.
In a global economy in which capital and companies could go wherever they wanted, the assumption was that there would be an international "race to the bottom" when it came to corporate tax rates. Governments would either have to spend less or jack up personal income or consumption taxes instead.
Looking at the tax planning exploits of Amazon, Google and the rest, you might say the prediction had come true.
Except, corporate tax revenues overall have not fallen sharply as the world has become more globally integrated, or more digitally connected; rather the opposite.
IMF economists looked at this recently. They found that globalisation had pushed down corporate tax rates quite dramatically in the UK and around the developed world. (Especially in the 1980s - think of the successive corporate tax cuts under Nigel Lawson).
The median corporate tax rate in the largest 19 OECD countries fell from 50% in 1982 to 34% by 2003. But the researchers do not find this translating into lower corporate revenues: "...in fact, for the US and all regions save for Sub-Saharan Africa, revenues have risen over time."
Economists might not be surprised by that in itself. If corporate tax rates start out high, tax experts would say that cutting the marginal rate doesn't need to cost the government revenue, if the government broadens the tax base at the same time by cutting loopholes and deductions.
In large parts of the world, a lower rate might also encourage more black market companies to join the legitimate economy and pay tax for the first time. All of those things would tend to push up revenues, even if rates are going down.
But you can't usually raise revenues by cutting the tax on corporate profits to zero. With all the competition out there, economists might still wonder why corporate profit taxes are still with us at all, let alone be raising roughly the same amount as they were in the 1960s.
A chart (on p28 of the report) shows how corporate revenues have varied internationally since 1980 as a share of GDP. Predictably, the number jumps around a lot; corporate profits swing about wildly, depending on the economy, and you'd expect corporate tax revenues to do the same.
IMF graphic on corporate revenue
But, as I said, the prediction, 20-30 years ago would have been that in a global economy, revenues would be jumping around a fast-declining trend. That is not the picture you see on the chart. Before the financial crisis, OECD countries were raising significantly more from companies as a share of GDP than they were 30 years earlier. The average corporate tax take was 3.8% of GDP in 2007, up from 2.6% in 1990 and 2.1% in 1975.
Of course, you'd expect the financial crisis to have cut revenues. But corporate tax revenues, on average, were still 2.9% of GDP in 2010 (which is the most recent year available). In that year the chancellor raised 3.1% of GDP from UK companies - compared with 3.5% in 1990 and 2.2% in 1975. In the US, the figure was 2.7%, compared with 3.5% and 1990 and 2.9% in 1975.
None of this makes the tax exploits or Apple and the others any less disturbing, for voters or governments. Even Google's Eric Schmidt seems to agree that global tax rules have not kept pace with the development of the digital economy and they need to be reformed.
Individual countries care how much money they get from Google, relative to their sales. In economic terms, the interesting question is whether they are paying less than the average overall. It is quite possible that high-tech companies pay less tax, as a share of their global revenues, than the global average. I have not been able to find any research on this, either way, but you can't help feeling there ought to be some.
In the meantime, economists will continue to be puzzled that governments are still able to raise as much money from companies as they do. And governments, for their part, might be somewhat relieved that all the talk of scams and mounting avoidance has yet to seriously damage their capacity to tax companies overall. But companies that choose not to send their profits into the outer atmosphere - or any other offshore location - will not find that reassuring at all.