Commodity Traders - the next shoe to drop?

While the focus was on the level of debt that can or cannot be sustained by Glencore one should also ask what amount of taxes are paid by the Commodity trading houses - most of them based in tax-friendly Switzerland. A lot of criticism was recently directed at the tax avoidance schemes employed by Amazon and Starbucks, to name just a few prominent names. But who really knows where the trading houses book their profits?

Spread Betting firm worth more than London Stock Exchange

Nothing could illustrate the absurdity of tax policies more than the fact that the British spread betting firm IG Index has now a larger stock market capitalisation than the centuries-old London Stock Exchange. As long as governments discriminate against individual investors in equities and even give tax advantages to those speculating on a short-term basis there is little hope for a level-playing field for retail investors. (04/07/2010)

Realistic Taxes on Private Equity Managers

The determined lobbying by the managers of Private Equity against increased taxes on 'carried interest' makes for depressing reading. In a time of general belt-tightening that will hit those on low income hardest the industry should do the honorable thing and admit that the light-touch taxation of the past years was an oversight by politicians and the public. It can be explained by the fact that 20 years ago the industries were tender plants that were hardly visible on the investment scene. Only the past 15-10 years have seen an explosive growth that made it hard to explain why people whose earnings in a good year can be larger than the GDP of many small nations should little tax - or even no tax at all in the case of 'non-domiciled' in the UK.
Carried Interest should never have been treated as capital gain, the only exception could be the returns on the actual cash that has been invested by the managers of the Private Equity Funds. Even there they may benefit from loopholes. They may allot themselves a higher share of the equity interest than is reflected by the amount of cash they put in. The same loophole may benefit the management of the portfolio companies, their equity interest usually differs widely from their actual cash investment. Maybe this tax treatment explains some - or even most - of the ability of the private equity industry to convince managers in public companies to join them (or facilitate their purchase of companies or subsidiaries at advantageous terms). We always had our reservations about the industry's claim of superior management performance. It would be much cheaper for the ultimate owner of industry - the public investors - to simply change management rather than sell out only to later buy the same businesses back at a much higher price.

Tax honesty on Carried Interest for 'Private' Equity

Managers of 'Private' Equity funds effectively manage money from Joe Public. There is nothing private to it - except the level of secrecy surrounding performance, fees and the compensation of the managers and the executives of the portfolio companies. Sometimes these people invest in funds or portfolio companies - but even if they do it tends to be on terms that favor them, i.e. they amount of money they put in is disproportionately small compared with the terms the public receives. So treating carried interest as a capital gain is to a large extent nothing but the abuse of a tax loophole by the insiders at the expense of the investing public. In addition, many funds - especially international ones - are located in tax havens which further diminishes their transparency and increases the tax benefits to their managers. Boosting efficiency of private industry does not require the private equity business. Installing better management would do the job as well - and at much lower cost.

Madness 'Mit Methode'

An expression that may need to be introduced from German into the English language is: 'Der Wahnsinn hat Methode' (Madness with Method). It means an ironic reference to something considered mad that is perpetrated with single mindedness and complete neglect of the fact that the action makes little or no sense at all.
This expression comes to mind when one has a look at the recently released interpretation to the Investment Tax Law released by the German Ministry of Finance. We did not expect a short and succinct paper but our jaw dropped when the paper popped up on our computer screen: a full 147 pages!
Given the thousands of pages of new legislation and edicts that are produced by our Solons every year this may not be a surprise but it highlights in chilling detail how far removed from the real concerns of the citizens the political class has become in the past few decades.
This is just another building bloc on the way to the destruction of private saving and pride of citizenship.

Tax regime should be neutral

Politicians never stop tinkering with the tax code. Has this ever been designated a form of obsessive behaviour by the medical community?
A case in point are the latest proposals for the taxation of investment income and capital gains in Germany.
We do not want to go into technical details but suffice it to say that the proposals are the result of a non-participatory form of democracy that is prevalent in Western Europe.
So-called political elites and technocrats representing the lobbies with an interest in the matter have produced legislation that will be far from neutral in its effects on business and the way the citizen invests his money.
As matters stand, investment in pooled vehicles of various kinds will be at an advantage and investors that hold shares in individual companies and want to manage their portfolio will be penalised.
This is contrary to the interests of wider share ownership and shareholder democracy.