FTSE 100
Dow Jones

Wednesday, 25 February 2015

Less than zero

You have probably never heard of Declan Costello. Elvis Costello (aka Declan McManus) maybe, but not Declan Costello. Apparently he is a pretty smart guy.

Declan Costello was born in Galway, Ireland in 1967. He has a Degree in Economics from Trinity College Dublin and a Masters Degree from the College of Europe in Bruges. He joined the European Commission in 1991 and has worked in DG ECFIN (barring a 9 month secondment to the Portuguese Ministry of Finance) as an economist up until 2012. More about him in a bit.

You may have noticed that the Greeks managed to get their budget reform proposals in by the midnight deadline. Midnight Hawaii time that was.  First Eurofudge, but the EU managed to read and consider the proposals remarkably quickly before announcing that they constituted a valid starting point for discussions.

Kudos, one would think to the new Greek government, who armed with their meaningless (for these purposes) democratic mandate hadn't managed to negotiate any concessions out of the Troika, but had at least been permitted to submit their own proposals rather than taking a diktat from Brussels.

And an impressive list of reforms they are too.  Not so much in the content, but in the form of the drafting, displaying a remarkably dexterous use of the English language and financial terminology. You can download a copy from here.

But if you do download it and read it in Adobe reader, be sure to click on File/Properties and look at the author.

My Aim is True.

Thursday, 12 February 2015

Dodgy donors

By criticising tax avoidance — an entirely legal activity — Ed Miliband has opened up some of his own colleagues and donors to questions about their own tax affairs.

They include donor John Mills, who gave £1.65m to Labour in shares two years ago because it was the “most tax-efficient way of doing this”. The Labour leader may also see renewed scrutiny of the arrangements set up around the Miliband family home after the death of his father.

After Mr Mills donated shares in his company JML Limited he said he had been advised to do so. “It is the most tax-efficient way of doing this because, otherwise, you get no tax relief on donations to political parties,” he said.

During his visit to a north London school Mr Miliband was questioned about the arrangement used by his own family on a townhouse in north London. After Ralph Miliband died in 1994 his assets transferred to his wife, Marion. Soon afterwards his will was changed via a so-called “deed of variation” to give 20 per cent of the family home to each of his two sons.

The property was sold in 2004 to David Miliband: there was no liability for inheritance tax because his mother was still alive. Had she died before that sale the arrangement from a decade earlier would have minimised the family’s tax liabilities. That is because each individual has a tax-free threshold on which no inheritance tax is paid, currently set at £325,000. By sharing a property between several people a family can diminish the tax owed.

“The reason people use deeds of variation is to save inheritance tax,” according to John Whiting, former head of tax at PwC. On Thursday, the Labour leader said: “I paid tax on that transaction,” when asked about the deal. But he was referring to the 40 per cent capital gains tax he paid on the profits. “It can’t be tax avoidance if no tax was avoided,” said a Labour Party spokesman.

Ah, but it was. Miliband ended up paying a different amount of tax.

Mr Miliband can also expect fresh scrutiny of the tax affairs of other Labour MPs, donors and associates. Past major donors to the party include several with “non-domicile” status in Britain, meaning that they did not pay UK income tax or capital gains tax on international earnings.

These included Lakshmi Mittal, Sir Ronald Cohen and Lord Paul. Labour has also received £20,000 last August from Vitabiotics, a vitamins company owned by a holding group based in the British Virgin Islands. Andrew Rosenfeld, who died last weekend, gave nearly £1m to the Labour party and was based in Switzerland for five years after the sale of his stake in Minerva, a property company. Mr Rosenfeld has never denied accusations that he had moved to the low-tax Alpine country for tax reasons.

The public accounts committee, chaired by Labour MP Margaret Hodge, has accused PwC of “selling tax avoidance on an industrial scale”. At the same time, the Labour Party has received more than £500,000 of “donations” in the form of consultancy advice from PwC.

Hedge trimming

Ed Miliband wants hedge funds to pay tax on UK shares that they trade. Well they do already.  What he also wants them to do is to pay stamp duty on the positions that they take.  They avoid that because of some thing called "intermediaries relief".

Intermediaries relief was introduced in the 1990s to allow investment banks to act as so-called market makers, buying and selling shares for clients, to increase the amount of liquidity, or the ease of buying and selling, in the UK stock market by reducing transaction costs.

Labour argues that this exemption has been exploited by hedge funds, which frequently opt to enter into financial contracts with banks that give them an economic exposure to shares, rather than buying the underlying shares themselves.

Because the hedge funds enter into derivatives contracts with banks, the banks' share purchases qualify for intermediaries relief whereas the hedge funds trade only in derivatives, no stamp duty is payable.

The hedge fund's position seems fair enough.  they didn't buy any shares, so no changes to the sare register for their trades and therefore no stamp duty.

Couldn't hit a barn door with an elephant

Much hand-wringing at the BBC at the auction of 3 years of Premier League television rights for £5.1 billion. The dweebs at the beeb can hardly believe that anyone would pay so much for so little.

Needless to say that the thought probably hasn't crossed their minds that there wouldn't be such demand for footie on the box if Auntie didn't produce a never-ending nauseous stream of antique-cooking-celebrity chat-dance shows.