As a rollercoaster year comes to an end, still there seems to be plenty to surprise – the Italian referendum has led to yet another major politician falling, whilst the Austrian presidential election has finally seen Mr Van der Bellen, the former head of the Green’s triumph.
The UK ignored Barack Obama’s threats and pleas after he visited in April and at the behest of Prime Minister David Cameron, lent his full support to the “remain” camp, but as we now all know, the UK went on to shock the world and vote for Brexit. Six months on, all we know is that Brexit means Brexit, whatever that means.
Donald Trump has made it from 150-to-1 outsider before he announced he was running for President to win the election too in another stunning turnaround, as populations around the world turned on their elected representatives. Why is this? Politicians seem to be less and less in touch with their electorates and the pollsters seem totally unable to really gauge what people are thinking and feed that intelligence back to the rulers in any coherent format.
The right to privacy is well protected, for example at your place of work, however, that is not the case for your bank account where outright transparency with total disregard for unintended consequences seems fast to be the new norm.
Dramatic new challenges have appeared, as mandatory information exchange has taken shape and bedded in. A fundamental shift has occurred between the state and the individual regarding financial privacy. The onus is now on citizens to show governments why the state should not have access to their personal financial information, rather than governments having to demonstrate why they have the right to access your private data.
As governments seek to expand their reach, the risk is this data will be used for purposes other than tax collection, like expropriations and human rights abuses by the less “democratic” state actors. And what about the likely occurrence of large scale hacking of this exchanged information?
And yet it all started so quietly with what seemed to many to be relatively benign new reporting standards: FATCA or the Foreign Account Tax Compliance Act, to give it is full name, began life almost by accident as part of the Hiring Incentives to Restore Employment Act, designed initially by the US congress as a means of tracking offshore accounts held by domestic US resident nationals, as Congress believed significant amounts of wealth were being held overseas on which US tax was probably due. Although several attempts to bring in similar legislation had failed, FATCA was passed, partly, some say, as a result of a sudden rush to hoover up tax dollars as the global financial crisis developed during 2008 and 2009. Now FATCA impacts all US citizens, irrespective of where they might live and in particular, it means any financial organisation whose clients include one of the estimated 8.7 million US expatriates living around the world now have to report directly on assets held to the US Internal Revenue Service (IRS). And where the US led, the rest of the world has followed. If FATCA is for US nationals, the OECD initiative, the Standard for Automatic Exchange of Financial Account Information or the Common Reporting Standard (CRS), as it is more widely known, is designed to capture and put in place automatic information sharing on the citizens of the 51 countries who have currently signed up to the rules, including all 34 OECD countries, as well as Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore, and South Africa.
Add to this the UK’s new beneficial owners register which came into force in 2016. From June 30, 2016, companies’ annual returns, now snappily known as ‘confirmation statements’ must contain beneficial ownership details. The details must also be provided when companies are incorporated and both limited liability partnerships and Societas Europaea (EU public companies) will also be required to report on the people who own or control their businesses.
If that was not enough, IT behemoth Apple was slapped down by the EU courts, after it lost the first round of its long-running tax case. Ireland was ordered by the courts to claw back tax it does not think Apple owes. Apple’s tax arrangements have ensured it has paid just 4 percent on nearly $200bn of foreign profits it has earned over the past 10 years.
Apple’s foreign cash mountain of $187bn held outside the US in 2015 is the biggest of any US multinational, but it is certainly not the only one, with multinationals estimated to have parked $1.2tn offshore, in the hope that US tax reform will eventually cut the cost of repatriating the profits.
In the Apple case, Europe has clearly demonstrated that a handshake is not a handshake and a deal is not a deal. Any investor will have a good think about investing in this continent where laws can retroactively be overturned by an unelected official with blatant disregard for national sovereignty and the rule of law. To quote The Wall Street Journal, “Ms Vestager is turning the EU into a banana republic on high-speed rail”.
So with 2017 just around the corner, how should we be planning a way through this apparently never-ending turmoil? Can we be optimistic, should we be pessimistic? Remember, as Sir Winston Churchill said, “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
Here at ZEDRA, we only see opportunity, because as we know, interesting times are creative times.
ZEDRA Deputy Chairman
December 20, 2016