Douglas G. Fathers is the Founder and Managing Director of SCG Fund Services (an Equityhub Group company) and is responsible for the overall day-to-day operations and management of the business. As an accomplished entrepreneur and business leader with a diverse background with over 32 years managing global companies in various industries, his unique perspective has been the stimulus towards his current success. SCG Fund Services launched in 2005 and for past 13 years have specialised in offshore fund formation. Today, SCG is considered one of the foremost consulting firms in the offshore fund industry with a presence in The Bahamas, BVI, and the Cayman Islands. As part of this month’s Professional Excellence feature, we spoke to Douglas about fund management in The Bahamas.

What type of funds does SCG Fund Services assist with? Are there fund structures unique to The Bahamas?

SCG Fund Services specialise in providing global clients with professional guidance through all aspects of launching and operating a fund. Our services extend to all stages of the fund formation process — from entity formation and the preparation of full-colour offering documents to advising clients on the selection of service providers to marketing the fund.

SCG maintains a personalized approach to guiding and educating new and emerging fund mangers in structuring both domestic and offshore funds. Our consultants and attorneys have significant fund experience in both the US and offshore.

In today’s challenging environment, The Bahamas offers several attractive structures used by professional managers, family offices, and project finance professionals. Within The Bahamas modern-day Investment Fund Act, there are four classes of funds including the Standard fund, Professional fund (open-end & closed-end), SMART fund, Recognised Foreign Fund. The SMART fund is unique to The Bahamas and provides managers several options to fit their needs.

Are certain funds more applicable to particular individuals and their circumstances?

Yes, certain fund structures are more applicable to the needs and circumstances of individual or group establishing the fund. For instance, an investment manager launching a fund with a specific strategy is likely to use a professional fund; whereas a private investment group or family office may prefer a Bahamas SMART fund. Strategies with illiquid investments, such as private equity or real estate investment, would favour a closed-end fund structure.

How important is the support function following a licensing?

Most jurisdictions, including The Bahamas, require licensed funds to engage an auditor and an independent fund administrator. These service providers provide investors with transparency and general oversight of the funds management and activities. The fund administrator provides most of the back-office tasks for the manager giving him/her more time to focus on the investments of the fund.

What factors would determine which jurisdiction to setup and license the fund?

There are several factors to consider including the reputation of the jurisdiction itself & its securities commission, the investors perception, foreign government’s perception, cost of setup, on-going fees, ease of setting up a bank account, licensing requirements, and regulatory requirements after licencing to name a few.

What structure should a manager use when setting up an offshore fund?

There are a number of structures to consider and in most cases, it would be determined depending on the location of the manager, location of the investors, and the type of investments the fund will make. Typically, you have four structures that include the Standalone, Master-Feeder, Side-by-Side, and Segregated Portfolio Company.

Standalone structure is one where only one fund vehicle (entity) is used. A Master-Feeder structure is typically used when there is a US presence and where a single manager is seeking investment from both US and non-US or tax-exempt US investors. The structure will comprise a master fund (an offshore vehicle), which conducts the trading, and at least two feeder funds that invest all of their assets into the master fund. A Side-by-Side, similar to a master-feeder structure, is used where a single manager is seeking investment from both US investors and non-US or US tax exempt investors. There will be two funds, an offshore and domestic US fund, both identically managed. Lastly the Segregated Portfolio Company or “SPC”, also referred to as an Umbrella fund, is a company where separate portfolios have statutory segregation of assets and liabilities. These are popular for operating various classes or portfolios with separate strategies.

Address:
Ste 205A-Saffrey Square
Bank Lane & Bay Street
P.O. Box N-9934
Nassau, NP Bahamas
Phone: +1 212 920 6690
Email: sales@scglimited.com
Website: https://scgfundservices.com/

Legacy systems are preventing nearly two thirds (64%) of US commercial banks from developing Fintech applications, research commissioned by Fintech provider Fraedom has revealed.

Interestingly, 82% of the respondents that highlighted this concern were shareholders. Over half of those polled also noted a lack of expertise within banks as an important concern (56%), just ahead of limited resources (53%).

The study included decision-makers in commercial banks including shareholders and senior managers as well as middle managers.

Commercial banks outsourcing services to a Fintech provider is clearly a trend on the rise, with only 22% of US banks revealing that they do not outsource any payment services compared to 30% of their UK counterparts.

Kyle Ferguson, CEO, Fraedom, said: “This research highlights that legacy systems are standing in the way of US commercial banks developing Fintech applications. This in turn is resulting in certain services such as commercial card and expenses being outsourced by more than three quarters of banks. It is now recognised that Fintech firms can help banks overcome these technical issues and benefit from previously untapped revenue-making opportunities.”

The research also discovered a growing inclination among commercial banks to partner with Fintech firms. The main reason for this shift is to help bring new products to market faster, as recognised by 94% of respondents.

The second most popular reason given for partnering with a Fintech was that to attract ‘new customer segments’ supported by 82% of respondents, followed by 76% who said it was to help ‘differentiate themselves from competitors’.

“US banks are beginning to see the rewards of partnering with a Fintech provider, especially when helping to bring products to market faster.” Ferguson added: “Established Fintech firms can understand the technical challenges that banks are struggling to cope with in local markets and provide an easy yet very effective solution while often differentiating them from their customers.”

(Source: Fraedom)

From the current situation in the US to oil and gambling stocks, Rebecca O’Keeffe, Head of Investment at interactive investor, shares some thoughts on this week’s news.

The huge importance of politics to equity markets might have led one to conclude that the US shutdown would be a negative factor for markets, but the bullet-proof nature of current markets, combined with limited economic impact on stocks that a shutdown delivers, has seen global markets shrug off any major concerns. The last US government shutdown in 2013 lasted sixteen days, during which the S&P 500 rallied 3.1% and the two prior shutdowns to that in 1996 and 1995 also resulted in gains for equity markets, so there is certainly precedent for investors to ignore these events. It is only if a protracted shutdown starts to impact consumer confidence and spending that investors are likely to sit up and take notice.

Gambling stocks have tumbled in early trade, after the weekend press suggested that the current government consultation might cut the fixed odds betting limit to just £2. Gambling companies have made hundreds of millions of pounds a year from fixed odds betting terminals and were hoping that the minimum stake would be towards the middle of the £2 and £50 consultation range. Although the consultation does not end until tomorrow, the suggestion that the response to the survey has been overwhelmingly in support of a cut to the minimum £2 means that this is indeed a significant threat to bookmakers.

In Germany, it looks like the stalemate that has afflicted German politics since September may finally be reaching a resolution, after the SPD voted to engage in coalition talks with Angela Merkel and her party. This vote will hopefully ensure that a repeat election can be avoided and should allow Chancellor Merkel to retain her place as a key lynchpin of the European Union and a major player in any Brexit talks.

Oil prices are on the rise this morning, as Opec and Russia have signalled their intent to co-operate on supply beyond the current deal terms. However, OPEC and Russia are just one half of the supply story, as producers in the US, Canada and Brazil are all expected to ramp up output in response to higher oil prices. With these new dynamics in the oil market, the possibility of higher supply is a major downside risk for the oil price.

We've seen some huge deals in 2017, from Qualcomm/Broadcom earlier in the year, to Gemalto/Atos in the last few weeks. We also had the 10-year anniversary of the financial crisis and the seating of Donald Trump into power.

As part of this week’s Your Thoughts, Finance Monthly reached out to experts far and wide to ask about their favourite moments in this financial year, from the most significant changes in regulation and announcements of further regulatory developments, to highlights of the most impacting acquisitions and mergers in the UK and beyond.

Andrew Boyle, CEO at LGB & Co.:

A key 2017 highlight for me surrounded Brexit and came in November at an event organised by the Edinburgh law firm Turcan Connell, which featured an SNP MP and a Conservative MEP. I expected a lively but entrenched debate carried out in a partisan fashion. To my complete surprise, the mood at the event was calm, points were made politely and there was an obvious willingness to compromise. It seems this more constructive spirit foreshadowed that of subsequent UK/EU negotiations given the breakthrough in talks with the EU and the clear indication that all parties, including the EU Commission, wanted to move forward. At the moment, the prospect of a transition period will keep the financial markets and company directors guessing what the final outcome will be. However, it is becoming increasingly clear that a failure to reach a deal will be in the interest of neither of the parties, whose economic viability is so deeply intertwined. I hope the new more constructive mood continues into the New Year.

Another highlight was the Budget. Fears of a radical change to EIS and VCT investing rules were unfounded. The Chancellor did refer to limiting EIS investment that shelters low-risk assets, but he offset this by promising increased EIS limits for investing in knowledge-intensive companies.

Continued support for early-stage businesses is key to what the Chancellor described as Britain’s position at the forefront of a technological revolution. UK SMEs will increase their total economic contribution to £217bn by the end of the decade –up significantly from 2015. In spite of the economic uncertainty around Brexit, British SMEs remain hungry for growth and are generally optimistic about the future. What often holds them back is a lack of funding, particularly through conventional avenues. SMEs often need to raise money quickly to adapt to changing markets or new opportunities, but obtaining bank financing can be a slow and cumbersome process – and that’s where EIS and VCT investors and indeed alternative lenders can help fund the gap. Specific measures announced in the Chancellor’s budget were positive for companies and investors. For now, government policy remains to support innovative companies notwithstanding the pressure to reduce tax breaks and apply funds elsewhere.

Richard Anton, General Partner, Oxx:

The biggest financial story of 2017, in the world of venture capital and technology start-ups and scale-ups, was the European Investment Fund suspending investment in UK VC firms. As an immediate result of the Brexit vote, FinTech lending was the first to suffer, before full suspension of investment into UK VCs. The EIF had been by far the single largest funder of UK venture capital firms and with the options for supply reduced so significantly, not only does this make competition for funding even more intense, the lack of on-the-ground European experience presents yet another challenge to businesses trying to grow to the next stage.

Thankfully, the British Business Bank has moved quickly to help mitigate the EIF’s withdrawal. The £1.5 billion Enterprise Capital Fund programme has got to work to support UK-based start-ups, recognising that the entire market needs to see small firms confident to apply for finance in order to grow. Perhaps the most encouraging indication that British funding is filling the void is the success of Episode 1 Ventures in recently raising £60m for its fund targeted at British early stage start-ups - £36m of this coming from the British Business Bank.

The withdrawal of the EIF shook up the market more than perhaps was covered at the time. Of course for any business to survive and grow, it needs to adapt to a range of situations, yet the sudden absence of European funding was particularly challenging. It is also one that will have long-term ramifications and when the dust settles the European funding market will look very different.

Peter Veash, CEO, Bio:

Amazon’s purchase of Whole Foods in August is my most significant financial moment of 2017. The deal was lauded by many industry pundits as a match made in heaven, with Whole Foods’ glowing reputation for offering high-quality goods marrying with Amazon’s unsurpassed track record for fast, efficient logistics – a new retail power couple was born.

The upshot? Aside from a slashing of prices across the board at Whole Foods (many by up to as much as 40%), the deal also meant that Amazon tech like the Echo, Dot, Fire and Kindle products are now available to purchase instore, while Whole Foods products are now available to buy online via Amazon. ‘Try before you buy’ Amazon Pop-Up stores have opened in locations all over the country, and Amazon Lockers have also been introduced instore, allowing customers to pick up packages and drop off returns. The deal has also given rise to rumours around the potential roll out of Amazon concept stores, including cashier-free checkouts, which would allow Amazon to push commerce tech to a new level.

The $13.7 billion megadeal knocked some competitor share prices sideways and boosted Amazon's – it rose so much on the news that some were saying they’d essentially bought it for nothing. Most importantly, it gave Amazon the physical outlets to develop the future of truly omnichannel retail, particularly within the coveted fresh grocery market (which the ecommerce giant had been preparing to attack for some time).

Marina Cheal, Chief Marketing & Customer Officer, Reevoo:

2017 marked 10 years since the financial crisis, and it’s been a story of reputations - new players trying to forge a new one, and old ones clinging desperately on to theirs.

The world’s big banks took a spectacular fall from grace, the likes of which hadn’t been seen since The Great Depression: after being perceived as trustworthy, powerful corporate behemoths for decades, consumer trust in these institutions was at an all-time low, with many feeling shaken and disillusioned by the lack of ethics displayed by those responsible for the crash.

Meanwhile, a new breed of disruptive, digital-first fintech brand was evolving to challenge the status quo. In 2017 this group of app-based banks have broken the mainstream. Monzo, Starling, Atom and others are now household names, appealing in particular to Millennials who came of age during the crisis years and had the least trust in the financial sector.

Where big institutions once represented trust, newer and nimbler banks have taken their place. Legacy is a dwindling commodity, replaced by convenience and transparency.

What we’re seeing is the next stage on the road to rebuilding consumer trust, but what people want most of all now is a sense that they are in control of their own money, coupled with an ease of use and friendly, authentic communications from their bank – and right now, the challengers are beating the legacy brands to the punch.

Howard Leigh, Co-Founder, Cavendish Corporate Finance:

This year’s November Budget was my highlight for 2017 as it provided some welcome news for the UK’s thriving Financial Services industry and saw the Chancellor confirm his commitment to maintain the UK‘s leading position in technology and innovation post-Brexit. Although it was anticipated by some that EIS and SEIS investments, were going to be in the Chancellor’s firing line, he instead doubled the EIS investment limits for “knowledge-intensive” companies, demonstrating the Government’s commitment to help UK start-ups. The Chancellor also chose to continue supporting Entrepreneurs’ Relief, which, along with other business-friendly policies, is predicted to support the inflow of billions of pounds worth of investment into growth businesses.

With Britain soon to lose access to the European Investment Fund, it was encouraging to see the Chancellor outline his plans to establish a new dedicated subsidiary of the British Business Bank to become a leading UK-based investor in patient capital across the UK. The new subsidiary will be capitalized with £2.5 billion. and will provide a cushion if negotiations with the EIB and EIF do not encourage then to continue investing in the UK. I hope, as some of it is our money and London is clearly Europe’s centre of social impact investing the EIF will now recommence its activities in the UK.

Finally, another key measure in the Budget was the introduction of a policy that will compel online ecommerce companies, such as eBay and Amazon, to police their own websites, thus helping to stem the £1.2 billion yearly tax loss due to fraudulent sales. I first raised this issue in an Oral question in the Lords some 2 years ago and am delighted to see that the campaign run largely with VatFraud.org and Richard Allen has been successful.

The Autumn Budget was a pivotal moment for the UK’s Financial Services sector and the policies laid out by the Government firmly position it as a friend to business. Not only will these policies help to boost UK businesses in the tech and digital sectors, but it will help enhance the City’s position as a leading global centre for finance and innovation.

Tsuyoshi Notani, Managing Director, JCB International (Europe) Ltd:

PSD2 can revolutionise retail banking, generate further investment into fintech, and drive innovation. We’re focused on increasing partnerships with PSPs and fintech firms, enabling them to secure global reach as a gateway to Asia, so February 2nd, when the UK government confirmed its PSD2 timetable, was a really promising step in the sectors’ quest to level the playing field."

We would also love to hear more of Your Thoughts on your favourite moments of 2017’s finance world, so feel free to comment below and tell us what you think!

Below Dan North, Chief Economist at Euler Hermes North America, lists several updates and thoughts on the latest matter surrounding the US federal reserve.

1. 1. A rate increase is a lock this week.
   2. We have been saying there will be 2-3 hikes in 2018, but now there seems to be pressure towards 3-4.
   3. We expect that the dreaded “dot-plot” the worst communications device ever, will also show a bit more of a lean to 4 hikes next year as recent economic data has been solid, and prospects for tax reform appear good (but we’re not there yet).
   4. The solid data will likely lead to a slight increase in the Fed’s GDP forecasts.
   5. Many wonder why the Fed is raising rates when we are still in relatively slow growth with no inflation. But it’s not about inflation today, it’s about inflation tomorrow since monetary policy acts with a lag of 3-5 quarters. And there is inflation – it’s just that it’s in assets like stocks, not consumer prices. Fed officials have expressed concerned about the risk of asset prices being overvalued.
   6. There is a problem though, Houston. The yield curve is flattening, and it may be because of the Fed. Clearly markets expect the Fed to keep driving the overnight rate up, and that could be pushing up the short end of the curve. And if you believe Fed actions will hold down inflation that could be pushing down the long end. That’s not a good sign for growth.
   7. Let’s not forget, when the Fed raises rates, it’s trying to slow the economy, and it works.
   8. Expectations are that there will be little change in posture next year under Powell’s command since he has never dissented as a Board member since 2012. He gave a relatively dovish testimony at his Senate hearing, suggesting he would basically be following in Yellen’s footsteps of raising rates gradually. But he also cautioned, as has Yellen, that hiking too slowly could cause inflation to overheat and force the Fed to hike rates faster.
   9. Interestingly Powell indicated that banking regulations implemented after the financial crisis were strong enough, but that it was also time to make the rules more efficient and less burdensome. “"We want regulations to be the most intense, the most stringent for the very largest, most complex institutions and want it to decrease in intensity and stringency as we move down through the regional banks and the community banks,"” Regional banks have been caught up in regulations designed for the larger banks, hampering loan growth. Relief for them could help the economy, and their stocks have rallied sharply since his testimony.
   10. Of course it’s Yellen’s last press conference. Will we hear a farewell, or some fond reminiscences?

Discussing the latest US tax cuts decision, FTSE updates and bitcoin news, Lee Wild, Head of Equity Strategy at interactive investor, talks to Finance Monthly about the end of year affairs.

With a week to go till Christmas there’s a whiff of Santa rally in the air. Markets should respond well to a ‘yes’ vote on US corporate tax cuts and possible political agreement to avoid a government shutdown on Friday. UK stocks are better value than their US counterparts and, despite the spectre of Brexit horse trading through 2018, there are no obvious banana skins between here and New Year.

In fact, Trump’s tax reform and the failure of progress on Brexit negotiations to revive sterling, will continue to give overseas earners listed here a foreign exchange kick. This, and typically thin trade as investors wind down for Christmas, should allow the FTSE 100 to consolidate gains above 7,500, something it has failed to do thus far. If it does, don’t bet against a new record high by year-end. It’s only one good session away.

An ongoing shutdown of the North Sea Forties pipeline continues to underpin oil prices, with Brent crude looking prepped for a crack at a fresh two-and-a-half-year high.

Whether or not bitcoin traded above $20,000 over the weekend depends on where you get your prices from. According to coinmarketcap.com it peaked Sunday at $20,089.

That bitcoin passed $20,000 for the first time over the weekend is not a surprise. A week ago, with the price at less than $17,000, we said ‘the music may have much longer to play on this one than people think’.

With every new milestone there’s fresh discussion around bitcoin’s legitimacy and potential, both as a trading instrument and revolutionary digital currency. It was the same when it first broke above $10,000 at the end of November. Valuing cryptocurrencies is like sticking your finger in the wind, but traffic is still very much one-way.

Introducing futures contracts in the US was meant to give short-sellers access to the market and improve liquidity, but availability is still fairly restricted. The introduction of bitcoin futures on the Chicago Mercantile Exchange over the weekend may help, but it will take time.

Until it becomes easier to sell short, buying dries up, or there are tech issues or a major hack, bitcoin will keep passing milestones with alarming regularity. Right now, there’s a long queue of investors, both amateur and professional, still waiting for a ride. This bubble is not bursting yet.

The US economy’s growth rate last quarter was recently revised on the basis of stronger investment from businesses and government bodies than previously assessed. GDP in Q3 was revised up to 3.3% annual growth rate compared to the previous quarter. This was according to the US Department of Commerce in a press release on the 29th November 2017.

This week Finance Monthly reached out to sources across the globe to hear their take on the current situation in the US, what has impacted growth across several industries, and what the forecast for 2018 looks like.

Josh Seager, Investment Analyst, EQ Investors:

US growth was revised to 3.3% annualised on Wednesday, up from an initial reading of 2%. This was the fastest growth rate in 12 quarters but there is likely to be some hurricane distortions, so we must interpret the data with caution, we don’t expect it to continue at this level.

Looking into the numbers and things look broadly positive. Consumer spending, which accounts for around 70% of the US economy, remained strong, growing 2.3%. This wasn’t quite as strong as last quarter but is a good level nonetheless and shows that the US consumer is relatively healthy. For the consumer to continue to spend, we really need wage growth. So far, this has been pretty anaemic in spite of very low unemployment. We believe this could be about to change. NFIB Small Business Surveys show that 35% of small business are now finding it hard to fill jobs and 21% are planning to raise compensations as a result. This data points are at cycle highs and this is highly likely to feed into US wage growth at some point.

Business investment picked up, contributing 1.2% to growth, up from 1% the quarter before. This is a pleasing sign as it suggests that corporates are gaining confidence in the economy and are willing to make the investment necessary to capitalise on this. Corporate profits were also up last quarter which should give corporates the financial freedom to continue to develop and (hopefully) growth wages.

Dan North, Chief Economist, Euler Hermes North America:

Consumer

• Despite tepid income growth and only modest spending growth, consumers are exuberant.
• Consumer confidence rose 3.3 points in November to 129.5, the highest in 17 years.
• The present situation component rose 1.9 to the highest level in almost 17 years, while the future expectations component gained 4.3, also a 17-year record.

Home Sales

• The actual level of annualized sales can be more revealing, and at 685,000 units it is the highest in ten years, which is undoubtedly good news. But it also illustrates the damage a burst asset bubble can cause.
• Despite having grown annually at 15% since the bottom, the current level of sales is still only half of what it was at the peak of the housing bubble, and it has only rebounded from the collapse to levels seen 20 years ago.
• But to repeat, the recent news is strong.

Holiday Shopping

• According to Adobe Insights, on-line sales rose 16.8% on Cyber Monday and 17% on Black Friday, extraordinary growth rates.
• But online sales are still only about 10% of total sales so these growth rates are not unexpected.
• The National Retail Federation (NRF) had predicted 164 million people would shop over the holiday weekend, but the actual results were 174 million.
• But then despite seeing more shoppers than expected, the NRF did not increase its previous forecast of 4% sales growth.
• The reports are mixed, but in the end we expect to see very modest growth in brick and mortar sales and very strong growth in on-line sales.

Tim Sambrook, Professor of Finance, Audencia Business School:

The upward revision, from previously 3.0%, was mainly due to a higher than expected increase in public and private spending.

The increase compares favourably with the second quarter of 2017 of 3.1%, and the third quarter of 2016 of 2.8%. It is the fastest rate since Q3 2014.

If the current estimate of growth in the Q4 GDP is realized, then this would represent the first time since 2004 that the US economy has posted three consecutive quarters of over 3%.

The growth rate is in line with the government’s target. They are engaging a tax cut plan to lift GDP to 3% annually. However, economists see such a pace as unsustainable and expect growth to slow sometime in 2018.

If you were to look for some bad news in the revision, then you could point to the fact that the revision comes from public and private spending and not consumer spending, which makes up 70% of the US economy. In addition, inventory build-up was significant and could prove to be a drag on growth in the future. However, this upward revision comes with a backdrop of severe hurricanes and low wage growth, which should have been quite negative for consumer growth.

This positive news will strengthen the case for the Fed to raise rates next month, although the announcement had little effect on the dollar or the markets.

Duncan Donald, CEO, The London Academy of Trading:

The highlight of last week’s US data card was the release of the GDP numbers for the third quarter of 2017. The number brought US GDP from 3% to 3.3%.

This is slightly above the median expectation of 3.2%, and shows the US economy continues to expand progressively with the GDP reading being the most aggressive since late 2014.

But in context, what does this mean for the US rate path, as the December rate decision from the Federal Reserve rate setting committee comes next week? From freshly inaugurated Federal Chair Jerome Powell’s perspective, the data is on course for a hike. Even the departing Janet Yellen appeared to shift her dovish tone, referencing data with the possibility of a hike in December.

We need to look no further than the recent performance of US stocks and the dollar for confirmation that the market believes in the upcoming rate hike. Despite the ongoing investigation into President Trump’s electoral campaign, which is an obvious anchor, there are no signs of a slowdown in the US positivity story. The one final hurdle for the market to overcome ahead of next week’s decision is the Non-Farm Payrolls on Friday. The data has been somewhat muddied over the last few months, as hurricanes have taken their toll. However, this month, we should expect to get a true reading on the strength of the US jobs market.

A strong Friday performance will push the market up the final few percent towards a December hike.

John Lorié, Chief Economist, Atradius:

Across the Atlantic, the US economic outlook is also robust, which is reflected in high business confidence. US GDP is expected to expand a solid 2.0% in 2017 and 2018. The positive outlook is supported by strong job growth, very low and still declining unemployment, and even firming wage pressure. In this environment, the number of bankruptcy filings is at historical lows. In Q3 of 2016, the number of bankruptcies in the US reached its lowest quarterly level since Q4 of 2006. We forecast a 4.0% decline in the overall number of insolvencies this year and a mild 2.0% decline in 2018. The US outlook is subject to risks, on the upside (tax reform) as well as downside (trade, NAFTA).

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

Bitcoin is becoming a pretty normal currency in transactions worldwide, and it hasn’t failed to infiltrate paychecks either. So, if a salary is paid in part or in full in bitcoin, how is the income taxed? And how is tax applied to transactions anyway? Fiona Cincotta, Senior Market Analyst at City Index, clarifies the matter for Finance Monthly.

Bitcoin is a virtual currency, that can be generated by mining or bought using cash, credit card or a paypal account. Bitcoin began in 2009. At the start, one of the advantages of bitcoin was the fact that is wasn’t regulated and could be used in transactions to avoid tax obligations. However, tax authorities caught on and since then tax authorities across the globe have been trying to introduce and advance regulation on the bitcoin.

Whilst the cryptocurrencies exist on a global network, tax regulations in general differ for each country around the world. However, broadly speaking most tax authorities are on the same page when it comes to the treatment of the bitcoin.

As a general rule, buying a bitcoin anywhere in the world is not a taxable operation in itself. However, taxes are likely to occur when you sell that bitcoin, or possibly spend the bitcoin, and make a profit in the process.

How much you would be taxed on the transaction would then depend on several factors:

• The amount of gains;
• How long you were holding the currency for;
• If the country in question has capital gains tax.

Again, generally speaking, most countries do not consider virtual currencies to be “currencies” from a tax point of view. Instead they are treated as a property or capital asset. This means that any gains are taxed as capital gains in the year that they are realised.

As with property, capital gains tax is liable on profits, meanwhile should an investor realise a loss from a bitcoin transaction, the investor would be able to deduct any losses and therefore reduce the tax bill.

Realization happens when the bitcoin is exchanged for any other type of other property. This could be cash, services or products. Essentially almost any transaction which involves the bitcoin is in fact a realisation event and therefore gains are taxable. The following transactions could be taxable events:

• Selling a personally mined bitcoin to a third party;
• Selling bitcoins bought from someone to a third party;
• Using personally mined bitcoins to buy goods or services;
• Using bitcoins bought from someone to buy goods or services.

Scenarios which involve mining of bitcoin followed by either selling or exchanging for goods or services afterwards, will mean that the value received for the bitcoin is taxed as personal or business income, after subtracting any expenses incurred from mining eg cost electricity.

Meanwhile the other two examples, taker the bitcoin as an investment asset. Gain are taxed regardless whether the bitcoin was exchanged for money or goods or services. To cement this point let’s consider the following example. Should you own bitcoins that have increased in value, it is impossible to use them with realising a gain. Using the bitcoin to purchase a service or good, for example, is considered to be two transactions. One, selling out or realising the gain on the bitcoin and the second, being the purchase of the service or product. Few tax authorities would allow such a blatant loophole, as to not tax the transaction and ascension of wealth.

However, the implication of this is that every transaction involving the bitcoin is taxable. This in itself raises questions over the effectiveness of bitcoin as a medium of exchange, if the user has to calculate the tax liability after every transaction. So, the possibility now exists that over taxation of crypto currencies, could lead to their death.

As mentioned at the beginning tax implications can vary from jurisdiction to jurisdiction. The IRS in the US has a fairly standard approach to bitcoin taxation. The UK’s HMRC takes a more personalised approach and has has specifically said that it considers tax on bitcoins on a case by case basis. Whilst such a personalised approach is fine now, should the bitcoin increase in popularity HMRC may find its resources strained.

Anticipation, scepticism and fear are holding more Brits than Americans back from embracing Artificial Intelligence (AI) in the workplace, according to a new study by CITE Research for SugarCRM.

The research on business executives in the US and UK reveals that that Brits are lagging behind when it comes to adopting Artificial Intelligence (AI) technologies into their work and personal lives. The survey reveals that 47% of Brits are currently using technology powered by AI in the workplace, compared with 55% of Americans. This trend transcends into people’s personal lives, with 62% of Brits and 64% of American’s using AI for non-work-related tasks, such as Amazon Alexa or Google Home.

The research also highlighted that when looking ahead, Brits are less open to embracing AI in the future. 69% of American respondents plan to deploy AI in the next two years, compared to 57% in the UK. Brits were twice as likely not to ever want to use AI, with one in five respondents (20%) opposing the technology, compared with 1 in 10 Americans.

Top concerns about AI on both sides of the Atlantic revolve around trusting the technology. More than half of respondents (52%) worry about data security, with 30% saying it is their top concern. Another 40% said they fear AI technology will make errors, and 41% fear losing control over the data. While 30% said they fear job loss because of AI, only 12% list it as their top concern.

When it came to the applications for AI in the world of work, US participants were more likely than Brits to say they would want AI to help with communication with customers (54% vs. 42% of Brits) or planning their day (46% vs. 35%). Automating data entry was the most popular task across the board for AI, with more than half (53%) believing it would help in their organisation, followed by gathering information on the internet (51%).

“The results of CITE Research’s survey reflect the industry's view on “the cloud” “big data” and other disruptive technologies over the years, said Clint Oram, CMO and co-founder at SugarCRM.

“You have a group that is ready to jump in with both feet and a group of naysayers who are absolutely against the technology. The rest of us are in the middle. Many have heard all the hype and are intrigued, but they would like some assurances that the positives will outweigh the negatives before they are ready to start spending money on AI tools.

“It’s interesting to see how attitudes differ across the Atlantic and that there is more reluctance from Brits in how AI can be used in their work. The technology offers the potential to reduce monotonous aspects of our working lives but there is a need to be realistic on its capabilities. It won’t replace people entirely and there is still a need for human interaction.”

In general, the survey showed that younger participants, those 34 or younger, were more excited and less fearful of AI. Younger participants were more likely to say their organisation will utilise it in the future (70%). Those 55 or older were more likely to worry about being overwhelmed with features they do not need (55% list this as a concern compared to 24% of those aged 18-54).

For the complete survey report, please visit here.

(Source: SugarCRM)

The Paradise Papers have revealed secret boltholes for many firms and individuals around the world, from sportsmen and the Queen to giants like Apple. But what are people’s thoughts on tax avoidance, which is very different from the illicit tax evasion? Tax avoidance has a large range of angles to consider, from investment to the moral dilemma of national tax, the spirit of the law, and of course financial protection.

Below Finance Monthly hears Your Thoughts on tax avoidance and offshore tax law loopholes, referencing the latest leaks and the information found therein, with experts from all round, covering various sectors.

Simon Browning, Partner, UHY Hacker Young:

The net is continuing to close in on a variety of tax planning and more information from the Paradise Papers will no doubt fuel HMRC’s efforts of collecting the tax gap.

In my opinion, there are two types of taxpayers who are getting caught up in the headline of ‘tax avoidance’:

• “Those who have little awareness or understanding of the tax plans they have entered into through their advisors, although ignorance should not be a defence, of course; and
• “Those who have knowingly relied upon tax planning that may have fallen within the letter of the law but perhaps not the spirit of it.

We are seeing many more arguments in the press about the moral position of taxpayers and it is clear the landscape has changed over the past five years or so, with tax avoidance appearing to be as abhorrent as tax evasion.

However, it is the courts that decide on tax matters and not the press, so we need to be careful not to tar everyone with the same brush and to allow informed decisions to be made through the correct channels.

The continuing change in landscape makes it very difficult for taxpayers and advisers to know where the line now is between acceptable tax planning and abusive avoidance.

It will be very interesting to see how HMRC and international tax authorities deal with the information from the Paradise Papers and whether they can successfully filter their way through commercial tax saving arrangements as compared to abuse of apparent loopholes.

Karl Pemberton, Managing Director, Active Chartered Financial Planners:

First and foremost, we must stress that we’re not ‘tax advisers’, albeit we do have a remit to consider taxation when advising clients on their investments.

The issue for us here is morality, as Tax Avoidance (or mitigation) is not illegal. Every client that invests within an ISA does so for the taxable benefits it brings. Similarly, so does a pension. If the tax breaks were not there, I doubt people would use them as they do. Investing offshore has always been a legitimate way of investing too, however some of the more complex schemes raised of late raises a question of morality, rather than legality.

I believe it’s the amounts involved that make it feel immoral to the majority of the general public. If, for example, we see someone who is taking home a large pay packet not paying the tax man the ‘fair’ amount, it makes people feel angry, as they’re already winning the lottery, as it were. The problem is, if it’s immoral to ‘legally avoid tax’ at all, the amounts should be irrelevant. This issue of morality, therefore, makes it impossible to police, as everyone has differing views.

If we’re saying that ‘avoiding tax’ at any level is wrong, then that should also mean the end to ISAs, pensions, and every accountancy business in the country, as this is their purpose in the end. It would become an absolute minefield.

Miles Dean, Managing Partner, Milestone International Tax:

It would be very surprising if the affairs of those individuals concerned were illegal or nefarious. It is the theft of the papers that is illegal.

Some of the documents relate to matters 75 years ago when the world was a very different place. Recent developments have made a significant impact on the use of tax havens, namely the common reporting standard (CRS) and FATCA. Both FATCA and CRS are automatic exchange of information protocols that mean privacy is no longer what it used to be.

Just because an individual makes an investment that is based offshore does not mean that they have done anything wrong – if they fail to disclose it (and the return they make) on their tax return then that’s tax evasion. But to make the quantum leap and suggest that everyone from the Queen to Bono is dodging tax because some of their investments are made via Bermuda, Cayman or Malta is stupidity on a grand scale.

Regarding Lord Ashcroft, if he is non-UK domiciled then he will benefit from the remittance basis of taxation. The fact that he took steps to mitigate his UK liability (legally) is a matter for him and his conscience, not the media.

The comments this morning by Shadow Chancellor John McDonnell are wide of the mark – imposing a withholding tax on dividends will not stop tax abuse - it would simply make the UK less competitive as a jurisdiction for large multinationals, at a time when we need to be more competitive than ever.

John McDonnell’s comments illustrate just how magnificently out of touch he is with reality. A worrying thought given he’s likely to be our next Chancellor.

Dr Daniel Cash, Lecturer in Law, Aston University:

Offshore investing, in very general terms and in order to provide a realism check, is legal. The ability to invest one’s funds offshore, traditionally in a small jurisdiction that does not have the most sophisticated regulatory structure, is noted as being a viable and useful investment strategy for a number of reasons. Whether it is to diversify one’s exposure to risk, to protect one’s assets from political variabilities (like war or political instability, for example), or to protect against market volatility, there are a number of benefits to investing offshore. However, ‘investing offshore’ masks a number of variances which really should be revealed: offshore investing may relate to an investment fund being ‘domiciled’ abroad, which is legal, but offshore investing is sometimes cited when people attempt to remove their income from tax authorities, which is not legal. Whilst some who are caught in the crosshairs of this latest scandals have not, necessarily, been accused of operating illegally, it is really the close connection between the business and political elite and these tax-avoiding schemes which is causing the scandal to have such an impact. Whilst allegations of illegality will likely be forthcoming, at the moment the focus is on both a. proximity between the scheme and the elite, and also b. the issue of declaration, as witnessed by the story enveloping Lord Ashcroft at the moment. Yet, the proximity-issue points to a much larger issue, and one which, rather regrettably, is difficult to paint in a positive manner.

The former British Prime Minister, David Cameron, once opined that tax avoidance – in relation to the comedian Jimmy Carr being outed as using an aggressive tax-avoidance scheme – is ‘morally wrong’, with his successor, Theresa May, vowing to combat tax-avoidance almost immediately after taking office. However, the first point to note is that it will be incredibly interesting to hear Theresa May’s responses to this latest leak, one which puts some of her Party’s most revered figures in the centre of the scandal (one doubts she will be as forthcoming this time). The second point is more abstract; the absolutely incredible amount of people and corporations caught up in this scandal can only tell us one thing: tax avoidance, or at least doing everything possible to reduce one’s tax burden, is inherent within society (particularly, rather obviously, for those with large reserves of funds). This should not really be revelatory, but the response to the Paradise Papers suggests that maybe it is. This latest instance of proof that influential people systematically ‘game the system’, should be the spark that initiates deep-rooted reform of the market-centred society we live in, but one should be able to realise how fanciful that thought is when looking at the impact of the Panama Papers; that is quite a way to end on the back of what, to all intents and purposes, should have been an era-defining revelation in its own right, but now represents par-for-the-course.

Nigar Hashimzade, PhD. Professor of Economics, Durham University Business School:

The recently leaked documents yet again brought to light offshore investments by firms and individuals, many of whom are politicians and celebrities. Most of the tax-reducing arrangements mentioned in these documents, however, are perfectly legal. Among many questions this may raise, two are “Is investing abroad a bad thing?” and “Do tax laws favour the rich?       “

Investment in global financial markets is similar to global trade. Both remove territorial constraints to economic activities and bring benefits. Investing abroad should be thus no more objectionable than buying imported cars or imported vegetables. However, offshore opportunities are not available to the majority of taxpayers, - typically, they are for very large investments, - so the issue here is the underlying inequality of opportunities, rather than an evil nature of global markets.

According to the official statistics, in 2017/18 tax year the top one percent of UK taxpayers earned 12% of the total pre-tax income and paid 27.7% of the total income tax revenue. The bottom fifty percent earned 25.3% of total pre-tax income and contributed 9.7% of the total income tax revenues. In 1999-2000 these numbers were 11% and 21.3% for the top one percent, and for the bottom fifty percent they were 23.8% and 11.6%, respectively. This reflects growing progressivity of the UK personal income tax, which also appears to have outpaced the growth in income gap.

The pattern is even stronger in the United States. There, in 2014 the top one percent of taxpayers earned 20.58% of total income and paid 39.48% of all income taxes. The bottom fifty percent earned 11.27% of total income and contributed 2.75% of all income taxes. For each dollar earned, the top one percent taxpayers paid 27.1 cents in tax, whereas the taxpayers in the bottom fifty percent paid 3.5 cents, - a more than seven-fold difference.

Thus, a highly progressive income tax system in the UK and in the US leads to the highest burden of income tax falling on the richest taxpayers. What these numbers also tell us is that the income distribution in both countries is highly unequal. This is why rich taxpayers have opportunities unavailable to many, - in particular, they can afford incurring high costs of offshore investments that give them higher net returns. The task for the governments is to address the roots of inequality, and this goes far beyond changes in the tax law.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

With recent news that the pound took a tumble over the weekend, partly attributed to the future of Theresa May as Prime Minister and the upcoming EU summit, rumours that China is looking to open its finance sector up to more foreign ownership, and updates on the latest trade announcement being teased by US President Trump after he pretty much told Japan they ‘will be the no.2 economy’ here are some comments from expert sources on trade worldwide.

Rebecca O’Keefe, Head of Investing at interactive investor, told Finance Monthly: “European markets have opened relatively flat, with the FTSE 100 the main beneficiary after sterling’s latest fall, as pressure mounts on Theresa May who is struggling to maintain her grip on power. The gravity defying US market has been the driving force behind surging global markets, so investors will be hoping that the Republicans can get their act together and deliver key US tax reform to help support the path of growth.

In sharp contrast to Persimmon’s lacklustre results and a gloomy report from the RICS last week, Taylor Wimpey’s trading update is much stronger and paints a relatively rosy picture of the current housing market. Confirmation of favourable market conditions and high demand for new houses is good, although there are early warning signs that the situation might deteriorate, with slowing sales rates and a drop in its order book. Share prices have already come off recent highs, amid fears that the sector had got ahead of itself and investors will be hoping for more help from the Chancellor in next week’s budget to try and provide a new catalyst for the sector.

Gambling companies have been making out like one armed bandits since the summer, as expectations grow that the Government will compromise on a much higher figure for fixed odds betting terminals than the £2 maximum suggested during this year’s election campaign. However, while betting shops are the focus of attention for politicians, the real action can be found on smartphones and elsewhere – with surging revenues and profits being driven from online betting. Companies who have got their online strategy right are the significant winners and although Ladbrokes Coral has seen a 12% jump in digital revenues, the comparison against online competitors such as bet365 and Sky Bet, who both reported huge revenue growth last week, has left the market slightly disappointed and sent the share price lower.”

Mihir Kapadia, CEO and Founder of Sun Global Investments, had this to say: “The last couple of days have seen two of the big global economies China and Germany report large trade surpluses underlining their robust performance over the year. In contrast, the UK economy has been on a downbeat weakening trend as Brexit and political uncertainties lead to declining economic confidence and slower growth.

Data released last month showed August’s trade deficit at £5.6 billion, and in comparison, today’s data of £3.45 billion for September has been a better than expected improvement, but nevertheless indicative of an additive gap that appears unlikely to be closed anytime soon.

While Brexit uncertainty has weakened the pound against its major peers, it had helped boost exports but in turn has also made imports more expensive. This is the short term “J Curve” effect which is often seen after a devaluation.  Over the long term, the weaker pound is perhaps likely to help the trade deficit as exports rise (due to the lower pound and higher growth in the global economy) while import growth slows down due to the slowdown in the UK.”

Velshi & Ruhle grade the economy's performance under President Trump.