A simple increase of 1% on income tax and National Insurance could pay for the 3.4% increase to the NHS budget announced by the Government says leading accounting, tax and advisory practice Blick Rothenberg.
Robert Pullen a Director at the firm said: “The debate has been raging over the weekend about how the increase to the budget could be paid for. There was alarm recently when a report from the Institute for Fiscal Studies and Health Foundation said that the NHS would need an extra 4% a year - or £2,000 per UK household - for the next 15 years and that the only realistic way this could be paid for is by tax rises of 3% on VAT, income tax and National Insurance contributions.”
Pullen said: “If a 3% tax increase is implemented, this would undoubtedly cause further issues within the Government, but a more manageable increase of just 1% to income tax rates could give the additional funding required."
He added: “We have calculated the impact of a 3% increase for an employed worker who is not at retirement age. It would mean extra tax of £892 for someone on £25,000 (3.5% effective tax rate) up to £11,747 for someone on £200,000 (5.9% effective tax rate).”
It is potentially worse as the tax brackets increase, Robert said: “For the £25k earner, that equates to £17 per week or £74 per month and for the £200k earner £226 and £979 respectively.”
He continued: “The NHS budget in 2016/17 was around £122bn, and so a 3.4% funding increase, as proposed, would broadly be equivalent to an extra £4.2bn per year.”
He added: “We calculated, using HMRC statistics, that if income tax rates were increased by 1% then in the tax year 2016/17 an extra £4.2bn would have been generated."
“This means that a 1% increase for an employed worker who is not at retirement age would mean extra tax of £297.00 for someone on £25,000 (1.19% effective tax rate) up to £3,196.00 for someone on £200,000 (1.96% effective tax rate).”
He added: “This would go some way to filling the hole in the finances without relying on the ‘Brexit dividend’ crystallising but if the dividend does come to fruition the one percent could be even less."
This week Finance Monthly hears from Nick Williams, Head of Business Development at UK Accountants, Intuit, who discusses change management methodologies and outlines an 8-step process for accountancy firms to apply Dr John P. Kotter of Harvard Business School’s methodology to ensure a smooth transition to Making Tax Digital.
These are changing times in the UK's accounting industry. Making Tax Digital (MTD) is the biggest overhaul to the taxation system in decades, and firms are not only adopting new ways of working, but they are completely re-thinking business models to meet the evolving needs of their small business clients.
The shift to digital accounting introduces new opportunities for accountants to take on more of a financial advisory role, providing real-time insights and strategic guidance to grow their clients’ businesses. However, while the shift to digital accounting is part of a wider push to digital in nearly all aspects of both our business and personal lives, the enormity of it cannot be underestimated. To ensure a smooth transition for their practice and their clients, accountants would do well to approach it in the same way as any other change management programme.
One of the most well-known change management methodologies is by Dr John P. Kotter of Harvard Business School, who observed countless leaders and businesses as they were trying to transform and execute their strategies, and developed the 8-Step Process for leading change. Here’s how accountancy firms can apply the same methodology to ensure a smooth transition:
- Establish a Sense of Urgency: For months – years perhaps – we’ve been saying “it’s not too late to be early” to prepare for MTD. Communicate the message internally and externally that now it is in fact is a bit too late to be early. It really is time to move forward with cloud-based accounting to avoid a last-minute panic when deadlines approach.
- Create the Guiding Coalition: Having dedicated “experts” flying the flag for digital accounting will help to ensure broader education among all employees on the forthcoming regulations. Start a process to train fee earners on your preferred cloud software and have "champions" trained as soon as possible.
- Develop a Vision and Strategy: Think about how you can use MTD to seize new market segments or opportunities. For example, there are an estimated 1.75 million landlords in the UK, and all those earning more than £10,000 from property income will be liable for Making Tax Digital. For some, recording transactions online will be a first, and they will likely seek counsel from dedicated experts. Be one step ahead by positioning yourself as a future-ready firm.
- Communicate the Change Vision: Once employees are up to speed on the changes, running a Making Tax Digital marketing campaign with clients is critical. Telephone calls, emails, client letters and even social media marketing will help to communicate these changes, and position your practice as a firm that is there for its clients every step of the way.
- Empower Employees for Broad-Based Action: Some firms and their clients will be new to digital accounting; however, employees should be given freedom to experiment with different ways of working. Periods of change are frequently followed by periods of innovation, so try not to hamper any enthusiasm as employees “test and learn” to drive better outcomes for their clients.
- Generate Short-Term Wins: Employees and clients will be more receptive to digital accounting if they see immediate benefits. Highlighting the time saved from less manual entry and the benefits gained from automation, for example, can help staff members see the potential of their roles to evolve from keeper of historical records to real-time financial advisor.
- Consolidate Gains and Produce More Change: Use data to establish what changes have driven the best rewards for clients and share best practices across the business.
- Anchor New Approaches in the Culture: Reward employees who share examples of how they have used digital accounting to achieve a better outcome, and encourage sharing, feedback and open discussion as you adopt new technologies to take your practice to the future.
By adopting a change management mindset, firms can ensure they stay ahead of the curve and have a business set up for long-term success.
From the pending implementation of VAT to the introduction of Inter-Governmental Agreements with foreign countries, below Finance Monthly hears about Kuwait’s most recent tax affairs through the lens of one the world’s largest professional services and accountancy firms, EY, and one of its top Partners and experts in Kuwait, Alok Chugh.
Despite previous plans, Kuwait’s parliament has recently announced that it will not implement VAT before 2021. What could this decision mean, both in the short and long term?
We are closely monitoring the progress in implementation of VAT and are in regular contact with all the key officials. Based on our discussions, we believe the VAT may be implemented sooner than 2021 (probably by January 2020).
While some businesses take a sigh of relief, this only seems to be short term, as once the other countries implement the VAT, the pressure on Kuwait will only increase.
What are the key challenges that could come with this decision?
Timing difference in implementation of VAT in Kuwait and in the neighbouring countries will have concerns by businesses involved in cross border transactions that may result in higher cash outflow. For Kuwaiti businesses, this is a blessing in disguise as this gives them additional time to prepare for VAT and also leverage from experiences of other countries.
What have been any other tax trends in Kuwait in the past six months?
Kuwait has signed the Inter-Governmental Agreements with the United States (US) for implementation of US FATCA. The financial institutions are required to do an annual FATCA reporting to the Ministry of Finance (MoF) and audit report prepared by a certified auditor is required to be submitted by the FIs on an annual basis.
In addition, Kuwait is a signatory to CRS Multilateral Competent Authority Agreement (MCAA). The MoF has recently issued additional guidelines for CRS, which among other things include appointment of an auditor for CRS reporting purposes (similar to the requirements for FATCA reporting).
Besides, from corporate tax point of view, there have been recent legal cases decided in the Kuwaiti courts, where the MoF has subjected the foreign principals and suppliers of products to tax in Kuwait, based on certain types of agency/distributorship agreements/arrangement. This effectively means a significant potential increase in the tax base. Kuwait is largely an importer of products and services wherein a number of foreign principals sell products and services through Kuwaiti agents.
Are there any concerns or future considerations regarding long term attractiveness for Kuwait as a place to do business? If so please elaborate.
Kuwait government is making efforts for: ease of doing business in Kuwait and has brought about legislative changes to attract foreign direct investments in Kuwait. Kuwait continues to spend on the mega projects in strategic Oil & Gas and Infrastructure projects. In addition, there are various other mega projects in pipeline, for which the tenders will be issued soon during the course of the year.
These projects definitely have promising business opportunities for local business as well as international companies wanting to participate in the Kuwait projects as subcontractors.
In addition, Kuwait has recently announced its Vision 2035, which will require significant investments in infrastructure, education, healthcare, over the course of 5-10 years.
Is there anything else you would like to add?
I take this opportunity to share our firm credentials. Our firm represents about 70% of the tax payers in the country and we are proud to serve almost all the major market players. We are a team of about 50 tax specialists, the largest tax team amongst the tax service providers, which includes team of experts in VAT, BEPS, Transfer Pricing, cross border tax advisory and tax compliance services.
Alok is a partner with EY’s Middle East practice and is based in Kuwait. He has lived and worked in Kuwait for over 25 years and has detailed knowledge of business and taxes in Kuwait. He has considerable experience in advising entry-level strategies for foreign multinationals wishing to do business in Kuwait. Alok has been involved in a number of consulting assignments (including cross-border planning, application of double tax treaties and the efficient handling of tax and commercial affairs for project due diligence, business paper preparation or review, and structuring operational activities). Alok is a member of the Institute of the Chartered Accountants of India and is an active member and frequent lecturer at the American Business Council, French Business Council, British Business Forum and Canadian Business Council in Kuwait. He is also on the Board of the American Business Council in Kuwait. Alok has been consulted by various government organizations in Kuwait on the practical implementation of various regulations in Kuwait, including the Ministry of Finance. Alok also works closely with the Kuwait Direct Investment Promotion Authority (KDIPA) and a number of other government institutions.
Contact details
Alok Chugh
Partner - MENA Government and Public Sector Tax Leader
Mobile: +965-97223004 / +965-97882201
Phone: +965 22955104
Floor 18-21, Baitak Tower, P. O Box: 74, 13001 Safat, Kuwait
Thousands of tax refund claims have been made within the first few weeks of the new tax year, according to research conducted by Rift Tax Refunds.
The tax refunds specialist has analysed their own company data to discover thousands of Brits are claiming back what the tax man owes them.
With the rising cost of food bills, travel costs and other essential expenses, it is becoming more expensive to get to work each year, yet HMRC finds itself sitting on millions of pounds in unpaid tax refunds for expenses year on year.
However, the latest research by Rift Tax Refunds’ shows that Brit’s are becoming tax savvy to ensure they claim back what they are owed.
Despite only a few weeks into the new financial year, Rift Tax Refund’s company data revealed that over 5,000 claims have been filed already, with the value of tax claims totalling over a staggering £3.5 million.
Due to the rise in living and travel costs, Rift Tax Refunds have seen the value of an average 4-year claim rise 20% to £3,023.56 over the past few years. Similarly, the HMRC have noted a 25% increase in expenses claims since the 2014/15 tax year.
Bradley Post, Managing Director at Rift Tax Refunds comments: “‘We’re delighted that thousands of people have already come to RIFT for help with their tax refunds this year.
“While the number of claims made this year is based on Rift Tax Refund data, due to the rise in living and travel expenses we can assume that our statistics are reflected industry-wide.
“As the HMRC sit on millions of pounds in unpaid tax refunds, it is important for those who are eligible to claim to keep their receipts well documented to ensure they are able to claim back everything they are owed.”
(Source: Rift Tax Refunds)
On 6 April 2017, a new set of IR35 rules came into force for public bodies. Essentially, HMRC was no longer going to allow the public sector to take contractors operating through Limited Companies at their word that they were playing fair with employment status law. Bradley Post, Managing Director at Rift Tax Refunds explains for Finance Monthly.
Under the new rules, it's either the public body itself that has to make the IR35 decision, or the agency involved if there is one. If a public body decides that IR35 applies, then the body itself starts taking tax and National Insurance payments out of the contractor's pay, as they would for any employee.
HMRC created a called Check Employment Status for Tax (CEST) to help with making these assessments simple and accurate. However, a year later we’re seeing complaints from contractors that they’ve been wrongly classified and so are being over taxed.
Recent figures obtained under FOI show 54% of CEST results say IR35 doesn't apply, meaning that that under the terms of the working relationship the contractor should be classified as an employee. Hirers, though, simply aren't trusting CEST's judgements. Worse still, a lot of them aren't even trying to use it, instead making blanket decisions to class everyone as an employee, with many public bodies saying they felt they hadn't had enough preparation time or support to take on their new legal responsibilities.
TfL, for instance, reacted by banning off-payroll payments to Personal Service Companies altogether. Worse still, there's plenty of evidence of blanket judgements being made. Essentially, public bodies are simply assuming IR35 applies in all cases, hence the thousands of contractors being overtaxed. Many contractors are raising their rates to cover the extra tax they're paying. Others have simply refused to take on public sector work, leading to project delays or outright cancellations.
Crucially, only about half of assessments have gone through any compliance tests at all. In fact, CEST was a factor in just 24% of assessments made - partly because of blanket decisions and partly because the tool wasn't ready when the assessments took place. In an environment that relies on voluntary compliance, what's developing is a shocking lack of trust.
In reaction to this a number of contractor websites are now sharing information on “how to pass the IR35 check” using the CEST tool, but “contriving a pass” is a dangerous route to go down and won’t protect an individual from a status challenges if HMRC believes an individual deliberately answered questions incorrectly.
Honestly, from HMRC's point of view, the CEST roll-out has been pretty much a success. Of course, the only way they seem to measure that is in how much additional revenue it pulls in. The thing is, the raw numbers don't tell the full story here. Since wrongly overtaxing contractors has the same effect, it's thin evidence at best that actual compliance is being boosted.
While tax revenue has risen, the door's been opened on a whole new kind of non-compliance – this time on the part of hirers. Meanwhile, HMRC's upbeat outlook has a lot of people more worried than ever about a private sector roll-out – perhaps as soon as 2019. If that did happen, it could mean some upheaval for contracts and projects already in progress. Judging from the continuing turmoil in the public sector, it's going to take careful consideration and planning to avoid falling down the same rabbit-hole. At the same time, private organisations will face the same legal threats and consequences as public bodies.
If the new system hits the private sector as many expect, it'll take effective guidance and comprehensive support from advisers to defuse the ticking IR35 timebomb.
To hear about tax relief claims in the UK, this month Finance Monthly reached out to the Co-founder and Director of R&D Tax Solutions – Laura Duggan.
Can you outline the process you go through to assess tax planning and tax mitigation strategies with your clients?
We have established ourselves as a leading boutique in the area of R&D Tax Relief claims. The process we lead our clients through follows 7 steps:
- Initial Fact Finding to establish the company’s eligibility to claim R&D tax relief.
- Allocation of a Claims Consultant: All our clients are allocated a consultant to ensure consistency in communications.
- Preparation of Draft Report: Based on conversations with our clients we prepare their R&D tax relief report which will eventually be submitted to HMRC.
- Finalisation: The final R&D is discussed and reviewed with our clients to ensure accuracy of all claims prepared.
- Submission to HMRC: We submit the agreed report and revised tax calculations to HMRC. Should further queries be raised, we will discuss them raised directly with our clients before responding to HMRC.
- Benefit obtained from HMRC: HMRC aim to process claims within 4 -6 weeks. Our clients usually receive the cash benefit of our work within 4-6 weeks of step 5.
- Diarise Future Claim: After the successful claim has been processed, this is the perfect opportunity to diarise the following year’s claim and look to streamline the process based on our clients operations.
What differentiates R&D Solutions from other companies that help clients with tax relief?
We have set out to be the nation’s champion in the formulation and completion of Research & Development (R&D) tax relief claims. Whilst there is stiff competition within the industry, we believe that the first-class service we provide by taking the time to understand a client and their activities sets us apart from competition.
We set out to understand the core of a client’s business and their future plans which we believe allows us to identify additional qualifying R&D activities and thus, provide further tax benefits for our clients. Our approach at looking into the future allows companies to more accurately log development expenditure which can have significant financial benefits as a result of the pre-planning and expert input.
In the last 12 months, we set out to grow the company by obtaining new clients and maintaining stature within the market by investment into our highly skilled staff. Our continued expansion plans within R&D tax relief with other areas of specialist tax reliefs allows us to compete on a larger scale with well-established companies within the industry.
We offer a flexible service, being on hand to assist and prepare a claim with our clients at a time to suit them, early morning or later into the evening. We believe that this approach has allowed to access avenues and obtain tax relief for clients that would otherwise not pursued with a claim due to time constraints.
Additionally, we have set the ball rolling to finalise our online portal. This will allow clients to log into a portal, upload information, whether this be financials or technical data and then able to work, save and revisit the portal to provide information at a time convenient for the client throughout the process.
This will create a service that will provide a client with certainty as to where their claim is up to and timescales when the claim will be finalised and submitted to HMRC. This will allow for claims to be submitted more efficiently and move away from the traditional piece meal email-based approach for providing information. We are aware that clients require a personal touch, as a result this portal will not simply be a ‘computer says’ approach, but an enhancing service in our wider customer experience.
What are the main challenges that you and R&D Solutions are faced with, considering the ever-changing nature of the sector?
A four-fold in competitors working in the industry has put a significant focus on a first-class service leading to retention of existing clients whilst seeking to grow and obtain new clients, whether they be first time claimants or unhappy with their current consultants.
Providing a professional, seamless process for clients from start to finish is a challenge experienced to date, which relates to building a client base and reputable company within the competitive industry. We have enhanced our reputation and presence within the sector. Clear signs of this are the increase in overall traffic to our website by 300% and the increase in Google searches by over 800%
Website: https://rndtax.co.uk/
While he retains a strong voter base in the conservative heartlands of North America, the Presidency of Donald Trump continues to be defined by an excess of smoke and a seemingly endless hallway of mirrors. Nothing embodies this better than the former real estate mogul's comprehensive tax reform plans, which has been presented as legislation for low and middle-income earners in the US.
While Trump's estimates suggest that the typical American family will receive a tax cut of $1,182, however, it will also offer huge breaks to wealthier citizens and the largest corporations in the US.
In fact, Trump's decision to slash the base corporate tax rate from 35% to just 21% represents the focal point of his proposed reforms, while it has already created considerable opportunities for entrepreneurs and investors alike. Here's how.
How Does Trump's Tax Reform Work and Who are the Initial Winners?
As well as slashing the corporate tax rate in the US by 14%, President Trump has provided sweeping tax reductions for special interests while also lowering the top federal tax rate from 39.6% to 37%.
Interestingly, the commercial tax cuts are permanent and will be sustained for the entire duration of the Trump administration and beyond, until the President's successor proposes his own reforms in the future.
While this will benefit all businesses to some degree or another in the US, those currently paying an inflated level of corporation tax will be the biggest winners. So too will corporations that hold considerable amounts in overseas cash and investments, with both of these tax breaks offering natural advantages to some of the largest and highest earning companies in the world.
Take Apple, for example, who at the time of writing hold an estimated 94% of its $269 billion cash reserves in overseas balances. As a direct result of Trump's tax reform, the CFRA estimates that the technology brand will be ultimately repatriate as much as $200 billion of this capital back into the US, while using the proceeds to buy back stock and boost its bottom line even further.
The same principle can also be applied to companies such as Amazon and Facebook, while JP Morgan analyst Sterling Auty has stated that US-based software stocks will also emerge as the largest beneficiaries of the tax reform. This includes prominent brands such as Intuit and Aspen Technology, who tend to have the majority of their revenue domiciled in the US and boast exceptionally high profit margins.
How will this Influence Investors?
Traders may be looking to take advantage of those companies that have benefited from the reforms, of course, and fortunately Trump's legislation has provided clear and obvious benefits for corporations that meet certain criteria relating to their business model and infrastructure.
More specifically, there should be a clear focus on companies that boast significant cash holding overseas, as well as those that have naturally high profit margins.
This includes a large majority of businesses in the vast and diverse technology sector, with brands such as Apple able to leverage their infrastructure, international reach and inflated margins to benefit significantly from Trump's multi-layered tax reform.
Luis Ugarelli is Managing Partner at Market Facilitators, an economic consulting facility with main offices in Lima, Peru. The company provides consulting services, advisory and economic studies for different sectors in key economic variables to foster competitiveness and development. Finance Monthly speaks to Luis about the Peruvian transfer pricing system.
Can you explain how the Peruvian transfer pricing system works? What type of documentation does a company have to prepare?
Arms’ length principles were incorporated in Peruvian Legislation in 2001. As the country is aspiring to join the OECD in the near future, Peru has been trying to follow OECD directives very closely. For instance, some of the BEPS actions have already been implemented. The size of the companies, measured by the level of sales (above US$3 million) plus the volume of controlled transactions (purchases plus sales above US$500 M), trigger the presentation of Local File. As of 2017, a condition to make deductible services received from related parties or tax heavens must pass the benefit test. Master Files apply for consolidated turnover of groups above US$27 million. CbC Reports would eventually reach around 10 Peruvian Multinational Groups only. BEPS reports in Peru are sworn informative declarations that may trigger voluntary or compulsory tax adjustments only when results prove to be detrimental for the treasury.
What are the potential penalties for companies if they fail to submit accurate information regarding transfer pricing? Is there an appeal process?
If company fails to present a Local File by due date each year (with the exception of this year, as taxpayers are expected to submit year 2016 in April 2018 and year 2017 in June 2018), fines for not complying are 0.6% of a company’s sales with a ceiling of US$32 thousand by report. The fines are the same if the filing is partial or inaccurate and applies to master files and CbC reports as well. There is a progressive fine reduction for voluntary filing as long as the taxpayer declares it before a transfer pricing audit is open. As conditions requested for the benefit test appear to be excessive, some companies are assuming that these expenses will be repaired on their income tax declaration. Resolutions as a result of transfer pricing audit may be appealed in three instances and may end up in the Tax Court.
What is the Peruvian Tax Authority’s current approach to transfer pricing? How often do they carry out audits?
Statute of limitations of tax obligations is five years. Although tax audits have not followed a particular pattern, some partial audits in transfer pricing have been carried out in the last three years, but have resulted in disputed items that may end up in the Tax Court. Since the government has observed a dramatic tax collection drop in the last five years, part of the blame goes to controlled transactions. Therefore, tax authorities are betting that the situation could be partially reversed with a closer attention and audits to transfer pricing matters. Parameters to define taxpayers under formal obligations have been raised and more revelation is asked, with the intention of focusing on a smaller number of taxpayers (a drop from 6,500 to 3,500) in material transactions with commodities and imports, particularly medicines, consumer goods, capital goods, grains; and in intra-group services and financial operations of all economic sectors.
How do you best help companies manage their transfer pricing issues and what services do you provide?
For Peruvian companies with significant transfer pricing operations, early advice and transfer pricing planning is by far the most effective approach for timely problem recognition and resolution – the sooner, the merrier, as I like to say. Companies do not need to act like they’re blindfolded regarding the market prices for specific material transactions they execute - for those purposes we do comprehensive benchmarking analysis of interest rates, royalties, rents, cost, etc. In some cases, an entire revamping of the controlled transactions is advisable, and this reshuffle can make wonders for the development of a streamlined operation and present a clear and transparent position before the tax authorities.
Contact details:
Email: luis.ugarelli@marketfacilitators.com
Website: www.marketfacilitators.com
With over 15 years’ experience assisting US individuals to navigate the complexities of the US and UK tax legislation, James Murray is currently a Director at Frank Hirth. James has a focus on those international US citizens and Green-card holders who have an interest in a non-US structure including those in the asset management sector.
Frank Hirth has over 140 tax professionals across London, New York and Wellington providing US and UK tax compliance and advisory services to individuals, partnerships, trusts and companies. Most technical staff are fully qualified to ‘dual handle’ both regimes, to provide global tax efficiency. Established over 40 years ago Frank Hirth is recognised as the leading tax accounting practice for assisting with international US tax matters outside of the US.
What are the headlines from recent US tax reform?
The main headline of President Trump’s Tax Cuts tellgamestop Jobs Act 2017 (‘tax reform’) signed into law in December 2017 was very much in the corporate arena with a reduction of the Federal tax rate from an eye watering 35% to a more globally competitive 21%; as well as a move to a territorial system of taxation for US companies.
Individual US citizens, greencard holders and residents continue to be subject to US Federal tax on their worldwide income, irrespective of where they physically reside. The top Federal tax rate has been reduced to 37%, however, they have also withdrawn a number of favourable deductions that were previously available – resulting in only a marginal change in the effective tax rate in many cases.
Unfortunately, some of the changes targeted at US corporations have had what may have been unintended, and certainly unexpected, results for our international US clients who have business interests overseas.
In what way has it impacted Americans doing business outside the US?
These changes can result in certain income within non-US companies being attributed to the US shareholders on an arising basis for US personal tax purposes, as opposed to upon receipt of funds by way of dividend. As a consequence the US and UK tax points and character may not align and therefore can result in double taxation.
We are already seeing that this will require those US individuals with a certain level of interest in a UK company needing to reconsider how to best structure their business and the best strategy for extracting funds tax efficiently.
Has there been a change in the number of Americans living in the UK as the result of the reform? Why is this?
It is too early to tell or measure, particularly given the general uncertainty in the UK with Brexit. Over the last few years there has been a general increase in the number of US citizens choosing to relinquish their US citizenship although again this may be down to several factors. For instance, the implementation of FATCA has been instrumental in identifying those US individuals living overseas who may not have appreciated the tax implications of holding such a status.
Do you have any advice for American taxpayers residing in the UK?
Yes. The key is to ensure that high quality, joined up advice is sought as soon as possible. Navigating two very complicated tax regimes is a challenge and mitigating double taxation is vital. There are a number of anti-avoidance and anti-deferral measures within both the US and the UK legislation which, without the appropriate guidance, can lead to mismatches and other issues. This is even more apparent for long term UK residents following the changes to the UK deemed domicile rules that became effective 6 April 2017 as they can no longer access the UK’s remittance basis.
Managing the US and UK tax systems requires a deep understanding not only of each jurisdiction’s legislation, but most importantly how they interact with one another, including the use of tax treaties. There are many myths out there that can often be dispelled following discussion with an expert. We find that more than ever having tax advisors working closely and collaborating with wealth managers and lawyers often results in the client obtaining rounded, and not siloed, guidance as to how best manage their affairs.
Are there any substantial changes you anticipate in the future, good or bad?
Many of the US tax reform changes are due to sunset in 2026 and so are not permanent. It will be interesting to see what, if any changes occur, especially if the US administration changes. At present there has been no indication that any amendments will be passed to correct errors. There will however be increasing pressure to do so.
With the ongoing spat between the United States and China, which seems to be only getting uglier, Katina Hristova explores the history of trade wars and the lessons that they teach us.
Trade wars date back to, well, the beginning or international trade. From British King William of Orange putting steep tariffs on French wine in 1689 to encourage the British to drink their own alcohol, through to the Boston Tea Party protest when the Sons of Liberty organisation protested the Tea Act of May 10 1773, which allowed the British East India company to sell tea from China in American colonies without paying any taxes – 17th and 18th century saw their fair share of trade related arguments on an international level.
Boston Tea Party/Credit:Wikimedia Commons
Trade wars were by no means rare in the late 19th century. One of the most infamous examples of a trade conflict that closely relates to Donald Trump’s sense of self-defeating protectionism is the Smoot-Hawley Tariff Act (formally United States Tariff Act of 1930) which raised the US already high tariffs and along with similar measures around the globe helped torpedo world trade and, as economists argue, exacerbated the Great Depression. As a response to US’ protectionism, nations across the globe began striking each other with an-eye-for-an-eye tariffs – countries in Europe put taxes on American goods, which, understandably, slowed trade between the US and Europe. As we all know, the Depression had an impact on virtually every country in the world – resulting in drastic declines in output, widespread unemployment and acute deflation. Even though most countries began to recover between 1932 and 1933, the world was hit by World War II shortly after that. In 1947, once the war was over, the World Trade Organisation (WTO) was established - in an attempt to regulate international trade, strengthen economic development and hopefully, avoid a second global trade war after the one from the 1930s.
Schoolchildren line up for free issue of soup and a slice of bread in the Depression/Credit:Flickr
Another more recent analogy from the past that could be applied to the current conflict between two of world’s leading economies, is the so-called ‘Chicken War’ of 1963. The duel between the US and the Common Market began when European countries, feeling endangered by US’ new methods of factory farming, imposed tariffs on US chicken imports. For American poultry farmers, the Common Market tariffs virtually meant that they will lose their rich export market in West Germany and other European regions. Their retaliation? Tariffs targeting European potato farmers, Volkswagen campers and French cognac. 55 years later, as the Financial Times reports, the ‘chicken tax’ on light trucks is still in place, predominantly paid by Asian manufacturers, and has resulted in enduring distortions.
President Trump may claim that ‘trade wars are good’ and that ‘winning them is easy’, but history seems to indicate otherwise. In fact, a closer look at previous examples of trade conflicts seems to suggest that there are very few winners in this kind of fight.
For now, all we can do is wait and see if Trump’s extreme protectionism and China’s responses to it will destroy the post-World War II trading system and result in a global trade war; hoping that it won’t.
Based in Germany, Westphal+Partner offers a wide range of independent tax, accounting and audit services, specialising in small and medium-sized foreign-owned enterprises doing business in Germany. Besides that, the firm acts as a controlling unit for the investor ensuring oversight. As CPAs, Westphal+Partner’s accounting operates risk-oriented detecting and avoiding misstatements during the accounting process, preventing changes at the annual financial statement. Finance Monthly speaks to Partner Ingrid Westphal-Westenacher, who tells us what clients expect from an accountant and shares the challenges that her firm faces.
From your experience, what do clients actually want from an accountant?
Our customers have decided to hire experts to solve a problem that has nothing to do with their core business. They want to focus on their business idea without losing sleep thinking about tax payments and accounting. Once entrepreneurs decide to outsource bookkeeping or get help from a tax advisory, they expect viable solutions enabling long-term success. And they are right to do so. An outsourced bookkeeping must be objectively and legally correct at any time, while also being up-to -date. Since corporate tax in Germany tends to be quite complex, especially for people with scant knowledge of the local tax codes, clients should expect their tax adviser to explain tax issues in a comprehensible manner, so they can make the right decisions.
How do you make sure to keep up with you clients’ expectations?
Communication - not just with the business owner, but with the management and the staff too.
What challenges would you say you and your firm encounter on a regular basis? How are these resolved?
One challenge that we face is knowing our clients’ business, plans, expectations, and needs. Only by knowing all of them, you are truly able to advise clients on a rational basis. One way to resolve this issue is to build a relationship of mutual trust. In order to do so, we firstly articulate what customers can expect from us, clearly defining our services and explaining our proceedings. With this certainty, customers know what to expect from us, so they can focus on their businesses without worrying about taxation or accountancy standards.
Foreign clients add a cultural dimension to the customer relationship - an aspect often underestimated and frequently resulting in underlying frictions. People from different parts of the world have different cultural preferences and backgrounds; i.e. some people from China have a different attitude when it comes to taxation, when compared to people from Germany. The essence of it is to avoid pointing out the differences, but instead, to make sure that both sides fully understand how the other side’s processes and systems work. To avoid any kind of misunderstandings, we not only pay close attention to these differences, but, for example, we also have colleagues in our team who are Chinese or have lived in China and are familiar with the culture.
How are these challenges set to change, in conjunction with the advent of technologies and the potential future needs of clients?
Both challenges will persist, even with the advent of technologies. However new technologies are already disrupting audit and bookkeeping. Today, clients can check the books at the end of the month online and see how their business performed. In the future, bookkeeping will be a fully automated process with real-time results, by the day, enabling better oversight and steering and even fewer costs due to AI-powered accounting software.
As a long-term former Chairwoman of the working group Quality Assurance SME at the Institute of Public Auditors in Germany (IDW), I’m convinced we will see significant changes in the field of auditing. Tool-based data analytics will enable us to read out process data and check them by sophisticated data algorithm. This will put auditors in an unrivalled position to consult the client on strategic decisions.
What’s your piece of advice to our readers?
When the decision to outsource bookkeeping has been made, try to hire an accounting firm run by CPAs. Accounting firms with a pure background in tax sometimes tend to disregard the code of commercial law, focusing narrowly on tax law; thereby causing problems with the mandatory preparation of the balance sheet under the German commercial law, and insofar causing unnecessary trouble and costs. Finally, trust your gut feeling when hiring an accounting company - it is very important to feel at ease and understood by your adviser. Be cautious of people hiding behind technical jarring.
Website: https://www.westphal-wp.de/
Finance Monthly speaks to Pierre-Noël Formigé, the Founder and CEO of Swiss company SEQUOIA, about the wealth management and estate planning solutions that his company provides, as well as his tips on maintaining and growing wealth for future generations.
Can you tell us about the core services that SEQUOIA offers?
SEQUOIA offers a holistic approach of wealth management thanks to a genuine "open architecture" which includes: wealth management, establishment of funds, management of funds - advice and follow-up, estate planning (trusts, foundations, companies), services of family offices, life insurance, financing (real estate, aircrafts, boats), reports and record keeping, risk management, compliance and regulatory assistance.
What would you say are the particular benefits for individuals of having professional assistance in relation to managing their wealth?
There are numerous benefits for individuals that decide to trust SEQUOIA with their wealth management. Our aim is not only to offer financial services, but also a financial experience and networking. Each solution and experience that we offer are specifically and uniquely tailored. SEQUOIA’s modularity and extensive experience allow for easy adaptation to our clients’ expectations.
What strategies do you and your team at SEQUOIA implement to ensure that your clients’ goals and objectives are achieved?
At SEQUOIA, clients are in the centre of our decision-making processes - they are our key priority. We have developed a well-informed overview of each of our clients’ financial situation, as well as a better understanding of clients’ goals and limitations.
Every portfolio construction starts with a discussion with the client or its representative, in order to fully understand their objectives and deliver a tailored-made investment proposal, allowing to approach and negotiate with partners. Our team can, at the request of the manager, take on a direct role in the relationship with customers, in accordance with their objectives and needs.
In your experience, are individuals fully aware of their assets and worth so that they can take advantage of tax planning? Which types of assets are usually missed?
SEQUOIA’s clients are fully aware of their assets, however, they might not be fully aware of their tax impact. We ensure that clients have better tax awareness, as it does have the potential to improve individuals’ returns. According to surveys, while many factors impact investors, the majority of high-net-worth investors say that it’s more important to minimize the impact of taxes when making investment decisions, thus we offer the right measures to help high-net-worth clients reduce the taxes owed on income and investment gains.
In order to do so, we put a lot of effort in selecting the right investment products. We try to take advantage of some losses, and implement additional strategies that can help our clients to manage, defer, and reduce taxes. However, sometimes, clients do not mention their real estate assets, which could have an effect on tax planning; we provide advisory services in relation to that too.
What solutions do you offer in respect of maintaining and growing wealth for future generations of the same family?
Transmitting heritage built from generation to generation and building a better future for entrepreneurs is the essence of SEQUOIA Group. Our team of professionals provides high-quality services in order to manage our clients’ wealth, taking future generations into account.
From portfolio management - with tailor-made investment solutions matching the clients’ needs, to liability management - which includes heritage planning, distribution agreements, trustee and real estate project management, SEQUOIA provides a cost-effective turnkey solution based on legally compliant practices to deal with the impact of new regulatory landscape and the different legal, technical and operational risks.
How challenging is it to work in an ever-changing regulatory environment?
It is obvious that the status quo cannot be maintained in this ever-changing regulatory environment, however, SEQUOIA’s approach regarding this is to constantly adapt and understand those changes to serve our clients better. Choices that have been made in the past may not be completely relevant in today’s environment or vice versa, but our job is to continuously develop strategies that are relevant to our clients.
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