Just consider what the current means of surveillance would have meant in the hands of Joe McCarthy. Then it was just people snooping on people. I suppose the occasional envelope was steamed open and mail was intercepted. Investigative techniques are not to be used by either the Canadian or US investigators on domestic citizens. Oh yeah! We now have privacy commissioners and others who are mandated to insure our privacy but little is really done about the domestic snooping that appears to be going on constantly. How are we to respond?
On a level of personal security we all know that we are to use complex passwords that can't be easily hacked. However, a determined hacker will inevitably breach our firewalls and well- meant complex passwords. Given that most banking transactions are now done over the Internet or some kind of safe network we can only hope that banks and other financial institutions are doing their stuff. My inside information is that banks are bleeding like the rest of us. However, banks and other financial institutions do pay up when your account is raided. This adds to the cost of banking but I am not sure how much it impacts the average consumer. And then there are credit cards and debit cards (another aspect of the banking business). The US refused to accept the chip technology (on the grounds that it was too expensive) that we take for granted in Canada and they are now paying the price. We a just a bit more secure with out chip technology but only a bit. And then there is Facebook and Twitter where we place our lives on display for the public to see (latest dumb post: going to bed now...").
There is a tort doctrine in common law called "contributory negligence". This doctrine applies where one of the parties, usually the plaintiff, has done something that contributes to his harm. Riding over the centre of the road, attending a hockey game where he is likely to be hit by a puck are just two examples. When we place ourselves in harm's way we cannot squeal too loudly when harm occurs. I believe that this principle applies to privacy. We have consented to put our lives out in public and we can hardly complain when those who are malevolent take advantage of our exposure. If you leave your wallet on the street can you complain when someone takes it? Even the common law states that a "finder" has good title against everyone except the rightful owners. Don't do dumb things.
We have allowed all of this to happen to ourselves and when bad things happen we can hardly complain. If we are to be catalogued and carded for the delivery of health care can we really, really, expect that some day some bureaucrat will have that information on his/her laptop and then leave that very laptop in the mall. Life happens. Is there really a firewall that can't be breached? By anyone? When we set up state-of-the-art spying agencies can we really, really expect that they won't spy? On us? As they say on Monday Night Football, "C'mon man!".
I am all for Snowdon and everyone else who is a whistleblower on spying (with the exception of exposing agents whose lives might be in danger). This is because people like Snowdon turn the tables on those who would keep spying on us a secret. If "they" can spy on us why can't we spy on "them"? Therefore, if we are contemplating criminal behaviour why can't one of the deterrents be the fear that we are being spied on and that our criminal behaviour will be found out. A bit Big Brother? It's already here. So we must all comport ourselves in a manner that assumes that we are being spied upon. If we don't like it we have to turn the clock back 40 years and no one wants to do that.
Friday 31 January 2014
Thursday 30 January 2014
Where You Live--The Conrad Black Tax Case
An article today in the Financial Post by Vern Krishna (a venerable tax lawyer, professor and writer) points out how arbitrary the courts can be in dealing with tax issues. As pointed out by Prof. Krishna tax treaties are negotiated and enacted so that a person or corporation is not taxed twice on the same income by the treaty partners. That is, if a person lives in two places, or more, there are rules as to who will b e the main taxing authority. In this case it was a question as to whether Canada or the UK was the main taxing authority. We all know that residency usually is the hallmark of where taxes are levied. Mr. Black stated that he was a resident of two countries--Canada and the UK. By the terms of the treaty he claimed that he was a domiciled non resident of the UK. He claimed that, while he was willing to pay tax on income earned in Canada he was not willing to pay tax on his non resident income--some $5.1. A tidy sum. Canada claimed tax on the $5.1 million and the tax court agreed. Notwithstanding the treaty that has tie breaking rules and notwithstanding that most observers believe that Mr. Black withstood the test of being a non resident of Canada, the tax court disagreed. The tax court took a very liberal view of the tie breaking rules of the treaty. I trust that Mr. Black will appeal and be successful in that appeal.
The arbitrariness of the CRA and now some of the courts indicates that any tax planning on an international level needs a further component: asset protection. While many business cannot benefit from asset protection (that is they have assets such as land, buildings, physical plants and accounts receivable in Canada that is open to seizure), many individuals and businesses who operate internationally have assets that are mainly in cash or cash equivalents. Those individuals might be wise to secure these assets in jurisdictions where tax authorities would have difficulty in collecting on a tax judgement. We have heard about some of these jurisdictions. Cook Islands, Belize, Nevis, etc. They are usually mentioned in a pejorative way. However, since the object of business or individuals is keep their savings and wealth intact, the use of these jurisdictions is not only not pejorative but fiscally responsible. That is practical tax planning.
The arbitrariness of the CRA and now some of the courts indicates that any tax planning on an international level needs a further component: asset protection. While many business cannot benefit from asset protection (that is they have assets such as land, buildings, physical plants and accounts receivable in Canada that is open to seizure), many individuals and businesses who operate internationally have assets that are mainly in cash or cash equivalents. Those individuals might be wise to secure these assets in jurisdictions where tax authorities would have difficulty in collecting on a tax judgement. We have heard about some of these jurisdictions. Cook Islands, Belize, Nevis, etc. They are usually mentioned in a pejorative way. However, since the object of business or individuals is keep their savings and wealth intact, the use of these jurisdictions is not only not pejorative but fiscally responsible. That is practical tax planning.
Wednesday 29 January 2014
The Current Plight of the CRA
My recent experience with the CRA has left me with a kind of Alice in Wonderland make believe world. In truth the CRA is underfunded. The recent cuts and more cuts of the Harper government has left the CRA labour short, labour untrained and labour unsupervised. Recently a client received an assessment that was patently wrong. Not a matter of conjecture or interpretation. Just wrong. A supervisor confirmed the assessment. Again wrong. The matter was taken to appeals in Shawinigan. The appeals officer threw the assessment out. Why? Because it was patently wrong. The client had spent $30,000 in legal and accounting fees and there was no redress.
In a recent expose by the CBC went on a hunt for tax cheats. This included hidden cameras and gotcha interviews in Canada and Barbados. No one from CRA was interviewed but it was implied, with a wink and a nod, that CRA was on top of this. Most of the information was bogus. But what it did was to falsely implicate literally thousands of legitimate companies that are formed in Barbados by Canadian parent companies. Of course this made the CRA and the government of the day look bad. What were all of these tax cheats doing running around Bridgetown. While as a direct result of this reporting or otherwise the CRA has created a newly formed group that deals with international trading transaction. A recent run in with one of that group has left me gaping in disbelief. After hundreds of hours of both the CRA official's time and time of company personnel and after the transfer of thousands of pieces of documentation, the CRA has taken the position that the transactions between the Canadian company and the Barbados company is a sham! CRA has taken the position that it will disregard binding contracts between the companies. I could have understood discussions regarding transfer pricing (that is the price at which goods are sold from the Canadian company to its Barbados subsidiary) or even a discussion about whether "management mind and control" existed in the Barbados (the Canadian company has employees in Barbados). However, the CRA took the lazy and intellectually dishonest way out. In fact, counsel believes that this position taken by CRA is the strongest position for the company/taxpayer. I believe that CRA will lose in court. Tens of thousands will be spent on professional fees. I wonder where all those highly trained persons in international trade/tax are hiding.
International tax/trade is at the crux of the Canadian economy. Canada has always been a trading country but that trade consisted largely of automobiles and resources. In the current world no Canadian company of any size can exist without some aspect of international trade. While this may consist mainly of north-south trade, trade worldwide is becoming the norm. The Internet and etrade have had a huge effect on business. If someone purchases intellectual property, where title to that property resides is a key factor in where income is earned. If that income is earned in a low/no tax jurisdiction so much the better.
If CRA persists in its iron fisted approach to international tax/trade it will drive business offshore so that none of the profits will be repatriated to Canada. Since Canada has a capital deficit that would be a shame.
In a recent expose by the CBC went on a hunt for tax cheats. This included hidden cameras and gotcha interviews in Canada and Barbados. No one from CRA was interviewed but it was implied, with a wink and a nod, that CRA was on top of this. Most of the information was bogus. But what it did was to falsely implicate literally thousands of legitimate companies that are formed in Barbados by Canadian parent companies. Of course this made the CRA and the government of the day look bad. What were all of these tax cheats doing running around Bridgetown. While as a direct result of this reporting or otherwise the CRA has created a newly formed group that deals with international trading transaction. A recent run in with one of that group has left me gaping in disbelief. After hundreds of hours of both the CRA official's time and time of company personnel and after the transfer of thousands of pieces of documentation, the CRA has taken the position that the transactions between the Canadian company and the Barbados company is a sham! CRA has taken the position that it will disregard binding contracts between the companies. I could have understood discussions regarding transfer pricing (that is the price at which goods are sold from the Canadian company to its Barbados subsidiary) or even a discussion about whether "management mind and control" existed in the Barbados (the Canadian company has employees in Barbados). However, the CRA took the lazy and intellectually dishonest way out. In fact, counsel believes that this position taken by CRA is the strongest position for the company/taxpayer. I believe that CRA will lose in court. Tens of thousands will be spent on professional fees. I wonder where all those highly trained persons in international trade/tax are hiding.
International tax/trade is at the crux of the Canadian economy. Canada has always been a trading country but that trade consisted largely of automobiles and resources. In the current world no Canadian company of any size can exist without some aspect of international trade. While this may consist mainly of north-south trade, trade worldwide is becoming the norm. The Internet and etrade have had a huge effect on business. If someone purchases intellectual property, where title to that property resides is a key factor in where income is earned. If that income is earned in a low/no tax jurisdiction so much the better.
If CRA persists in its iron fisted approach to international tax/trade it will drive business offshore so that none of the profits will be repatriated to Canada. Since Canada has a capital deficit that would be a shame.
I'm Back
After almost two years of being away I have decided to continue my blog. While the content will be, mostly, professional stuff I will be commenting on world and other political economic and other matters. I found that the blog was cathartic. It was a way in letting off some emotional steam that tends to build up. So, loo for entries. Please give me some feedback. In that way I know that I am writing to someone other than the ether.
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