Where to start?  There is so much happening just now it is difficult to keep up.  It is though a fascinating time to be living in Scotland.

The signing of the Edinburgh Agreement ends the “phoney war”.  So besides this historic agreement what else has been happening?

Let’s start with the publication of the report by the Liberal Democrats Home Rule Commission.   The report can be found here.  There are a number of problems with this report.  The first is the likelihood of the Liberals being part of and having a major influence in a future UK Government.  At best the Liberals will form part of a UK coalition government where they will be a junior partner.  Even if they were to persuade the senior party to implement their plans the Scottish Parliament would not see any new powers until at best 2020.

Then there is the accusation: why should anyone take the Liberal Democrats seriously on tax and fiscal powers?  The Liberal Democrats are in power just now and all we have is “Calman minus”.  They are not even devolving control over the Crown Estate in Scotland and that is party policy.

Then there is the report itself.  The report barely goes beyond Calman.  Inheritance tax is to be devolved and also some parts of capital gains tax.  This report does not even go as far as their last fiscal powers report, the “Steel Commission”.

One last point.  It must be remembered that the Liberals have historically been willing to go further than the other main UK parties on devolving power to Scotland and the Scottish Parliament.  The Steel Commission report provides evidence for this argument.  What their latest report shows is that the Liberals are moving away from devolving serious tax and fiscal powers to the Scottish Parliament.  That is disappointing and makes you wonder.  If this is all the Liberal Democrats are offering what will Labour or the Conservatives come up with?

The answer to that question is likely to be not much.  Johann Lamont has finally announced the membership of her “further devolution commission”.  What is the likelihood of this commission coming up with a proposal close to “devo max” or even “devo plus”?  Almost none.  Why?  Remember the struggle to persuade the Labour party to legislate the Calman proposals.  Think of how few powers are contained in the Scotland Act.  Think of the reaction to senior Labour party members to any call for further tax and fiscal powers to be transferred to the Scottish Parliament. Think of Alistair Darling’s recent comments and in fact of any Labour MP who talks on this subject.  An article from the BBC news website on the Labour party’s commission can be found here.

Then there is the Conservative party.  It is clear that most Conservatives see the European Union debate as the main debate.  Scotland is but a side show.  The idea of a “Constitutional Convention” is laughable.  It simply means, let’s kick this matter into the longest of long grass for another generation.  Ruth Davidson has already got her retaliation in first and stated that corporation tax or welfare powers should not be devolved.  In any case, this convention won’t even see the light of day in any meaningful way until after the referendum.  Does anyone actually believe that the Conservatives will even consider any further powers for the Scottish Parliament if Scotland votes No?

Staying with the Conservatives, Boris Johnson, the Mayor of London, seems to be everywhere these days.  That includes arguing for greater powers for the London Assembly.  Johnson has asked George Osborne, the UK Chancellor of the Exchequer, for London to be allowed to retain any stamp duty raised on property sales.  Johnson argued that London inhabitants face higher tax rates than households elsewhere in the UK, and would use the taxes to fund house building and regeneration schemes.  More on this from the Telegraph can be found here.

The BBC is to offer staff contracts to some of its biggest names in a U-turn after months of accusations that it is enabling tax avoidance.  It is claimed that up to 25,000 people employed at the BBC do not pay tax at source.  More on the U-turn by the BBC can be found here and on the background to this story here.

I was interested to see that the Labour party at its recent conference proposed to reinstate the 50% top rate of income tax and apply a two year suspension of stamp duty on properties worth less than £250,000.  I wonder if they realize that these will be matters for the Scottish Parliament to decide as a result of the Scotland Act by the time the next UK general election takes place.

The UK Government is seemingly intensifying its attack on tax planning by corporations and wealthy individuals.  Extra measures include a 50% expansion of HMRC’s High Net Worth Unit, more resources for the Liechtenstein Disclosure Facility and a new policy of refusing to award government contracts to companies that use “aggressive tax avoidance” schemes.  More on this from HM Treasury can be found here.  When thinking about this it is worth also reading about Starbucks.  Two House of Commons committees are due to question tax officials about how Starbucks has been able to avoid paying tax on £1.2bn of sales since 2009.  More on this from the Guardian can be found here.

Plans put forward to add an additional fee to visitors’ hotel bills have been abandoned by the City of Edinburgh Council in response to objections from business leaders.  The Council planned to reduce its spending on festivals, events and promotional initiatives by setting up a “transient visitor levy”, aimed at raising more than £3m a year.  More on this from the Scotsman can be found here.

The McLaren Formula One team have successfully argued that a £32m fine they paid after a 2007 Ferrari spying controversy should be tax deductible.  McLaren had argued the fine was not a statutory penalty but one incurred under Formula One rules, making the fine a business expense.  HMRC disagreed but a tax tribunal has found in favour of McLaren.  More on this from the Telegraph can be found here.

Now to an old favourite, a Financial Transactions Tax.  European Union Tax Commissioner Algirdas Semeta says he is now sure there are enough Member States to force through an EU wide Financial Transactions Tax. Portugal, Italy, Greece, Spain, Germany, France, Belgium, Austria, Slovenia, Estonia and Slovakia have committed to this new source of new revenue.  A press release from the European Commission on this can be found here.  The UK Government has also confirmed its opposition to a Financial Transactions Tax.  More on the UK Government’s stance can be found here.  This issue provides further evidence of the growing disengagement with the European Union by the UK Government.

Germany’s Roman Catholics are to be denied the right to Holy Communion or religious burial if they stop paying a special church tax.  Can you imagine this happening in Scotland?  An article from the BBC news website on this can be found here.

The French Government is to revise its 2013 Budget proposal to raise the entrepreneurs’ rate of capital gains tax on equities from 19% to 45%.  The retreat follows a campaign against the tax by an organised group of business owners called Les Pigeons (‘The Mugs’ or ‘Suckers’).   An article on this from Reuters can be found here.

Let’s end with a story from America.  It seems that Chinese immigrants are less keen on an American passport.  Citizens of the People’s Republic of China who emigrate to America used to apply for US citizenship as a matter of course, but now America’s  world wide taxation policy is making some of them regret it.  An article on this story from the South China Morning Post can be found here.

Time for another “tax land”.

Where to start?  Jersey seems as good a place as any.  Jersey is also considering its constitutional options.  This is not new news.  I was in Jersey a couple of years ago and independence was also being discussed amongst the lawyers I was meeting.  Jersey is in a different position to Scotland as it is for all intents and purposes already fiscally autonomous and is a British Crown dependency.  An article on this from the Guardian can be found here.  This is from the Guardian article:

“A barrage of regulatory clampdowns and political attacks on the Channel Islands’ controversial financial industry has prompted one of Jersey’s most senior politicians to call for preparations to be made to break the “thrall of Whitehall” and declare independence from the UK.  Sir Philip Bailhache, the island’s assistant chief minister, said: “I feel that we get a raw deal. I feel it’s not fair.  I think that the duty of Jersey politicians now is to try to explain what the island is doing and not to take things lying down.  The island should be prepared to stand up for itself and should be ready to become independent if it were necessary in Jersey’s interest to do so.”

It seems that the constitutional genie is well and truly out: Scotland, Falkland Islands, Jersey and now it seems on UK membership of the European Union.

Now to the announcement by the Scottish Government of its intention to create its own tax administration and collection agency, to be called Revenue Scotland.  Its main job initially will be to administer the two new Scottish taxes devolved under the Scotland Act.  The fact that it is to work closely with Registers of Scotland and the Scottish Environment Protection Agency, also makes sense.  These new taxes, a Scottish Stamp Duty Land Tax and a Landfill Tax, will be directly linked to the work done by these organisations.  A press release from the Scottish Government on this can be found here.

As regular readers of this blog will know I have been writing about this issue for many years now.  Whilst I welcome this announcement I still think we need to be more radical.  We need to review all government tax, law and registration services.

I was not surprised to see some negative comments about the Revenue Scotland announcement. However, if Scotland has its own tax system it needs its own tax administration and collection agency.  That applies just as much under the Scotland Act as independence.  That though is not the only reason.

Let’s not forget the fact that UK tax law is based on English legal principles, or how HMRC and HM Treasury dealt with the introduction of Stamp Duty Land Tax in Scotland, or the inheritance tax changes to trusts, or the proposed planning-gain supplement, or the Scottish Government’s local income tax proposal or VAT and the new Scottish police and fire services.  All good reasons for welcoming Revenue Scotland.

The Scottish Government is in no doubt that Revenue Scotland will be able to administer the new Scottish taxes at a lower cost than HMRC.  I agree with that.  I have also noticed that no-one seems to remember one of the more ridiculous claims made when the Calman Commission proposals were being debated.  The Scotland Office claimed that the cost of administering a separate Scottish tax system would be the same as the present UK system.   Complete and utter nonsense.  The Scotland Office paper can be found here.

One last point on Revenue Scotland.  I met with a number of Scottish Government officials just before the 2011 Scottish election on this issue.  It was quite clear that they wanted nothing to do with this idea and only met with me at the insistence of a Scottish Minister.  Thank you Jim Mather.  I wonder if their attitude has changed in any way?  Let’s hope so as this is just the start.

The Scottish Government has also published its consultation on a Land and Buildings Transaction Tax.  This will replace Stamp Duty Land Tax.  The consultation for Scotland’s replacement to Landfill tax will follow later this year.  I use the word “summer” advisedly.  The consultation can be found here.

And there’s more.  The Scottish Government has finally published its consultation in a “plastic bag tax”.  The consultation can be found here and a press release from the Scottish Government here.

Even the UK Government is playing its part.  The UK Government is consulting on whether to allow the Scottish Government the power to issue its own bonds.  The move would potentially allow Scottish Ministers to raise hundreds of millions of pounds.  A provision in the Scotland Act 2012 has already enabled the UK government to amend the way in which Scottish Ministers can borrow from 2015-16.  An article on this from the BBC news website can be found here.  The consultation can be found here.

One last point on fiscal powers.  The UK government is reportedly considering proposals to devolve complete control of income tax if Scotland votes ‘no’ in the independence referendum.  This sums up nicely what is wrong with the UK Government’s approach to this debate.  If the UK Government has a serious proposal to make, make it.  If not be quiet.

Now to tax and morality.  David Cameron branded comedian Jimmy Carr “morally wrong” for seeking to avoid paying his fair share of tax.  Mr Carr is understood to use an aggressive, though legal, tax avoidance scheme which enables members to pay income tax as low as 1%.  This is dangerous territory for David Cameron.  Already the press have published the names of many others who are involved in similar schemes.  If David Cameron seriously wants to tackle this issue he must act against all those who seek to evade tax.  Has he considered the public disclosure of all tax returns or a minimum percentage of tax that must be paid?  I suspect not.

This is not just a UK Government issue.  The Herald discovered that Transport Initiatives Edinburgh used tax loopholes to allow directors to avoid paying income tax rates on £1 million in fees and bonuses. The company, which closed last year due to its handling of the trams project, paid directors and consultants through their firms.  As a result, they were subject to 20% corporation tax rather than 40% income tax.  The article from the Herald can be found here.

The evidence that the “rules” do not apply to everyone is growing.  Whether it is the 3,000 UK civil servants being paid through a company, or the payments made to those who were partially responsible for the trams fiasco in Edinburgh or the celebrities avoiding tax.  I am resisting the urge to say it was ever thus but in times such as this it does seem even more reprehensible.

One last point.  I often am quite critical of HMRC.  I would argue for good reason.  That said, is it really time to cut 10,000 jobs?  An article on this and the proposed strike by HMRC staff can be found on the BBC news website here.

Have a good week.

I will start with where to find one of the most comprehensive and detailed review’s of last week’s UK Budget statement.  The link is to the always impressive Institute of Fiscal Studies and can be found here.  In particular see the “Business tax, stamp duty and anti-avoidance slides”.  Slide 9 on “Forecast revenue from anti-avoidance measures” is particularly revealing.

Now to the fiscal powers debate.  I was disappointed to see that Peter de Vink has been deselected by the Scottish Conservatives.  Peter was hoping to be elected to Midlothian Council in May.  As far as the fiscal powers debate is concerned this shows that there are some on the centre right in Scotland who can see the opportunities that fiscal autonomy or independence could bring.  Peter’s article in the Herald can be found here.

The First Minister has announced the setting up of a “Fiscal Commission Working Group” to establish a fiscal framework for an independent Scotland.  The group will include former World Bank Chief Economist and Nobel Prize winner Jospeh Stiglitz of Columbia University.  My only slight concern relating to this group is that it comprises four economists, albeit eminent economists.  This group needs to ensure it has an understanding of the underlying law and legal framework that is crucial to creating a new fiscal framework for Scotland.  That includes the creation of a Scottish Exchequer.  I will once again reiterate my call for a review of all government tax, law and registration services in Scotland.  A Scottish Government press release on this can be found here.

I was also interested to read about a report by the David Hume Institute which claimed that an independent Scotland would be liable for around £100bn of debts and liabilities.  In particular I was interested to see one of the first references to the “other side of the balance sheet”.  The report says that the UK has approximately £821bn of “assets”. The £100bn figure comes from deducting £69bn of assets from approximately £152bn to £171bn of debts and liabilities.  A Scotland on Sunday article on this story can be found here.  This particular part of the fiscal powers debate has a long way to go.

In advance of May’s local government elections, Reform Scotland has called for non-domestic rates to be devolved in full to local authorities.  This would mean a variable business rate in different areas of Scotland.  The Reform Scotland paper can be found here.  Non-domestic rates is one of two tax powers presently devolved to the Scottish Parliament, the other being council tax.  Although these taxes are administered by the local authorities control rests with the Scottish Parliament.

The proposal would also mean that local authorities would keep the revenue they collect from business rates.  At the moment this revenue is handed back to the Scottish Government.  The Scottish Government then redistribute it as part of its grant to each local authority.  The Reform Scotland proposal could also be used as a framework for when control over the Crown Estate is devolved to the Scottish Parliament.

According to a study carried out by accountancy firm UHY Hacker Young, Edinburgh businesses contribute more to the UK economy per head of population than any other major city in the UK.  The main reason given is that Edinburgh wasn’t hit as hard by the financial crisis as London.  In addition, oil-rich Aberdeen was the only major UK city to see its economy grow during the recession.  This is excellent news for the Scottish economy.  An article from the Scotsman on this can be found here.

Now to corporation tax.  The Financial Times recently reported on how 15 multinational companies are considering locating substantial operations in Britain as a result of UK corporate tax reforms.  What I found most interesting about this report is when tax competition is discussed in a UK context it is a positive thing.  Contrast this with the tone of the debate over devolving control over corporation tax to the Scottish Parliament.

Continuing on the corporation tax theme.  It is not just the headline rate of tax that is important.  The underlying law which deals with, for example, reliefs is just as important.  Further evidence for this is shown by a recent statement by the European Commission.  The European Commission are claiming that the UK is breaking European law by imposing an immediate capital gains tax charge on companies that relocate to another EU member country.  The Commission has requested that the UK abolish this exit tax within two months, or be referred to the European Court of Justice.  I await the reaction to this by the UK Government with interest.  The statement from the European Commission can be found here.

The Unoccupied Properties Bill has been introduced at Holyrood.  At the moment empty and unfurnished residential properties are exempt from council tax for the first six months.  After that period, they qualify for a 10% discount.  Under this Bill local authorities will be given the power to charge up to twice as much council tax on residential properties that are empty and unfurnished.  It is hoped this will act as an incentive for home owners to bring their empty houses back into use.  The Scottish government has also announced a new loan fund which will be specifically targeted at projects bringing properties into use for affordable housing.

The new bill will also controversially reduce the non-domestic business rates discount for some empty commercial properties from 50% to 10%.  The argument put forward is that this will encourage owners to bring boarded-up shops back into use.  A report from the BBC news website on this can be found here.

Now to England.  Over 85% of local authorities have accepted the UK Government’s offer to freeze council tax rates.  This is contrast to the agreement reached between the Scottish Government and all of Scotland’s local authorities.  England’s local authorities were offered a one-off grant worth 2.5% of their budget if they agreed to the freeze.  More on this can be found here.

Let’s end with Wales and the news that the Welsh Government has started to consult on whether Wales should be a separate legal jurisdiction.  The Welsh government will ask the judiciary, lawyers and members of the public whether they want a jurisdiction along the lines of those found in Scotland and Northern Ireland.  An article from the Law Society Gazette on this matter can be found here.

Have a good weekend.

I think I will start with VAT and the proposed new Scottish national police force.

It was reported this week that the proposed new Scottish police force may face an annual VAT bill of £22 million.  Under the current structure police forces are treated like local authorities and are exempt from VAT.  However if they merge they may be subject to VAT.  The Scottish Government is currently in talks with HM Treasury to eliminate or minimise this potential financial liability.

I suspect that the Northern Ireland police force will be mentioned during these talks and in particular the fact that it has VAT exempt status.   So what is the problem you might ask.  The same exempt status will surely apply to the new Scottish police force.

The “just because it happens in Northern Ireland” argument does not always work with HMRC and HM Treasury.  Northern Ireland already has borrowing  and welfare powers.  Anyone involved in the Scotland Bill deliberations knows how hard HMRC and HM Treasury resisted calls for borrowing powers to be included.  They succeeded in ensuring that only restricted powers were included.  Welfare powers were not even seriously considered.  Northern Ireland is also to get partial control over air passenger duty and also possibly corporation tax.

In addition it seems that HMRC and HM Treasury cannot help but react negatively to any policy proposed by the Scottish Parliament that deviates from or impinges on reserved matters.  Examples include free personal and nursing care, local income tax, the Scottish Futures Trust and minimum alcohol pricing.  A report from the BBC news website on this issue can be found here.

Now to a surprise cut in council tax.  Stirling Council has become the only local authority in Scotland to reduce its council tax after councillors passed a budget on their second attempt.  The 1% cut, effective from 1 April, will see Band D council tax go down £12 from £1,209 to £1,197 a year.  Labour and Conservative councillors voted the measure through in an “alternative” budget after rejecting the minority SNP administration’s proposals.  More on this can be found on a BBC news website report which can be found here.

An article from the Evening News reports that The City of Edinburgh Council wants to investigate the idea of creating a “business improvement district” for Edinburgh’s tourism industry.  This would involve businesses making contributions to promote the city.  The article from the Evening News can be found here.  This is the latest in a series of revenue raising ideas from Edinburgh Council and of which I have written about previously.  See for example my blog of 9 December 2011.

Now to the fiscal powers debate and the latest group to enter the fray.  “Devo Plus” is a creation of the think tank Reform Scotland.  I should declare an interest as a former trustee of Reform Scotland and one of the authors of Reform Scotland’s “Devolution plus” fiscal powers paper.  I am though not involved in this campaign.  The position taken by the Devo Plus group is that they are opposed to “devo max” and independence and do not think the Scotland Bill goes far enough.  Instead they argue that the Scottish Parliament should be able to raise an amount roughly equal to what it is responsible for spending.  VAT and national insurance would remain in the hands of HM Treasury to ensure that Westminster was also accountable for its spending in Scotland.  It will be interesting to see what impact this campaign has in the coming weeks.  More on Devo Plus can be found here.

Now to the debate over the top rate of income tax.  Those arguing for the abolition of the top rate of income tax will be analysing preliminary UK Government statistics which suggest that the 50 per cent top rate of income tax has not raised any extra revenue.  A press release from Grant Thornton on this can be found here.

The “fuel duty discount pilot scheme for remote island communities” comes into operation today.  I was not surprised to see a report on the BBC news website of how HM Treasury had warned oil suppliers against attempting to profiteer from this scheme.  The report also notes that over the past week rises in the cost of fuel supplied to Orkney, Shetland and the Western Isles have been greater than the proposed discount.  Petrol and diesel at island pumps can be 20p more expensive than mainland prices.  I also read this week that the UK has the highest fuel tax burden in Europe with 60 per cent of the cost of unleaded petrol and 58 per cent of diesel made up of fuel duty and VAT.  I will resist the urge to make an ironic comment about North Sea oil.  The BBC news website report can be found here.

The BBC has reported that Barclays Bank has been ordered by HM Treasury to pay half a billion pounds in tax which it had tried to avoid.  Barclays was accused by HMRC of designing and using two schemes that were intended to avoid substantial amounts of tax.  The schemes, described as “highly abusive”, enabled the bank in question to avoid paying corporation tax on the profits it made from buying back its own debts, and to reclaim tax credits from HMRC on certain investment funds. The BBC website news report can be found here.

Now to a good idea.  A new “Assurance Commissioner” is to be appointed by HMRC following criticism from the House of Commons Public Accounts Select Committee about the relationship between HMRC and big businesses.  The following is from an article in the Telegraph and nicely sums up this matter: “In a move that amounts to a humbling mea culpa, HMRC is set to admit it needs to improve “transparency, scrutiny and accountability” after being publicly lambasted by the Parliamentary Public Acounts Committee over deals with Goldman Sachs and Vodafone.”  The article from the Telegraph can be found here.

I think I will end with France.  I will resist the urge to talk about last weekend’s game and instead mention a report by Reuters.  According to Reuters there has been a sudden rise in the number of French residents asking their wealth advisers about tax exile. They fear that the socialist party’s candidate Francois Hollande may win the forthcoming presidential election and increase wealth taxes.  I have heard similar claims many times before.  I have often wondered how many people actually leave.  I suspect not that many and, of those who leave, many regret doing so.

Have a good weekend.