Mexican Artists Pay Taxes in Paintings

The Mexican government has figured out a way to dramatically simplify the payment of taxes, at least for one segment of society: artists.  Mexican artists who elect to participate in the program must donate good quality works of art to the government based on the number of works sold during the tax year.  Here’s how it works.  If an artist sells 1-5 paintings, then that artist must pay a tax of 1 painting.  If 6-8 paintings are sold, then 2 paintings must be donated.  The maximum number that any artist is required to donate is six.  The “Payment in Kind” program began in 1957 and is very popular among artists of virtually every skill level.

Virtually every skill level because if you can’t sell your art, then the government doesn’t want it.  In fact, even some art that can be sold is not very good, but tax collectors still accept it.  And what is done with all this artistic “revenue”?  It adorns the halls of government buildings and public spaces all across the country.  Its actually quite a fantastic “win win” for the artist who gets to avoid paying taxes in currency and also may benefit from the public display of his/her pieces.  Those who participate in the Payment in Kind program are required to donate a quality piece of art that is of similar value to the pieces that were sold and also that is representative of the particular artists body of work.  There are art experts on staff at the Mexican Tax Administration Service who make sure the artwork meets these standards.  But since there is a chance the government will display the donation, most artists are motivated to donate some of their best stuff.

The Mexican government has amassed an impressive collection of paintings and other artwork from some of Mexico’s finest contemporary artists.  But, because the program is open to anyone who sells art, it has also accumulated a huge collection of garbage that nobody would dare hang on their wall.  That might be the biggest drawback…that, and all the actual revenue that the country is missing out on.

It’s Tax Day in Canada

Today is “Tax Day” in Canada, sort of.  The income tax filing deadline in Canada is usually April 30th.  They get a couple weeks more than we get here in the United States. Self-employed taxpayers have until June 16th to file, although they must pay any tax due by April 30th or else they are hit with penalties and interest on their tax debt.

This year, however, Canadians have until May 5th to file their income taxes.  There was a 5-day service interruption earlier this month caused by the Heartbleed bug, so authorities have granted taxpayers a corresponding 5-day deadline extension.

The Canada Revenue Agency (CRA) strongly encourages taxpayers to file electronically, but there are still the 17% of paper-filing holdouts.  Similar to US rules, Canadians must have their tax returns postmarked by April 30th (or May 5th this year) in order for the return to be considered timely.  And just like in the United States, a Canadian tax return does not need to be mailed with any special insurance, tracking, or certification.  It doesn’t have to be shipped via any special priority method either.  A simple first class postage (or equivalent) will suffice.  But paper filing creates unique problems (at least anecdotally) in Canada where the state-run postal service is not considered to be very trustworthy.

Check out these complaints that were undoubtedly written by grumpy Canadians on the eve of their tax filing deadline who are beginning to formulate excuses for filing late:

Assuming Canada Post even picks up mail from the mail boxes. Even so, I think majority of the post simply ends up collecting dust somewhere or even into the shredders.                                     ~ CKHY

I received NO MAIL in the last 9 days. No junk mail, no bills I am waiting for. I never receive mail on a Monday or Friday. How can we trust Post Canada to send tax returns ?                     ~ Bob_The_Bear

Online FATCA Registration Begins

The Foreign Account Tax Compliance Act (FATCA) was enacted in the wake of the UBS scandal to crack down on tax evasion overseas.  “FATCA requires foreign financial firms to report to the IRS offshore accounts held by Americans that are worth more than $50,000.

Foreign financial institutions that fail to comply with FATCA face a 30-percent withholding tax on their U.S. source income, a penalty that could effectively freeze them out of U.S. financial markets.

FATCA does not take effect until July 2014, but there have been many steps leading up to it, including this latest step: the registration process.  Remember though, the registration process is not an individual tax requirement but, rather, is meant to secure the cooperation of financial institutions.  If you are a in charge of a foreign bank, investment firm, or insurance company and you need to know, the schedule of events appears to be as follows:

Registration may be done on paper, but the IRS highly encourages that it be done through their secure online web application.  Once a firm has registered, the IRS issues them a Global Intermediary Identification Number (GIIN).  Registration ensures that the IRS knows who to call when they have questions about suspected tax cheats.


Foreign Accounts & Quiet Disclosures

There is a general, overriding principle in the world of Federal Tax that goes something like this: if you voluntarily come forward to admit your prior tax shenanigans and get yourself back in the good graces of the IRS, there will be less negative consequences than if the IRS catches you trying to get away with it.

This principle holds true with respect to the reporting of foreign bank accounts.  Taxpayers who are caught hiding assets in foreign accounts are subject to criminal prosecution, and could very well face jail time.  But under the IRS voluntary amnesty programs, those who come forward and disclose their offshore assets are promised they won’t go to jail in exchange for payment of penalties that are based on a percentage of their account balances.

There are some who want to get back on the grid without having to pay hefty penalties.  They do this by making a so-called “quiet disclosure” of foreign assets; they report their foreign accounts without giving the government information about accounts held in previous years.  This type of disclosure sometimes tricks the IRS into believing the accounts are brand new.

According to a recent report by the Government Accountability Office (GAO), there may be more quiet disclosures happening around the nation than the IRS has the ability to identify.  The IRS is taking tips from GAO on how to detect more of these quiet disclosures.

Indian Tax System Broken

Americans are pretty conscientious about paying their taxes compared to some other countries.  How about the extreme tax-dodging that goes on in India?!  Many farmers and impoverished Indians are exempt from paying taxes.  But on the other end of the spectrum are the very wealthy (and there are many of them in India) who openly refuse to pay taxes.  The millionairs don’t feel they should have to pay because they cannot trust their corrupt government officials to spend the money appropriately.  They don’t want to bank roll their politicians and make them any richer.  Basically, few people have bought into the idea of paying taxes in India, and there is no shame in the dramatic underreporting of income.  Very interesting article here.

Starbucks: How Evil Are They Really?

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If you haven’t heard about Starbucks’ tax problem, here is a very brief synopsis.  A Reuters story broke last week which outed the popular coffee chain for having paid only £8.6 million on sales of  £3 billion in Britain since 1998.  And then people were outraged when Starbucks offered to come clean by paying £20 million over the next two years, as if they are in a position to simply offer whatever they feel is a fair amount.

#1 – How dare Starbucks avoid paying taxes at this time of extreme belt-tightening all across Europe! If multinational corporations would just pay their share in taxes, then the UK and other European countries wouldn’t be in such bad shape.

#2 – How dare Starbucks think they can just throw out a figure they determine is fair when regular tax payers must pay everything they owe plus penalties & interest on top of the original tax debt!

But let’s put this in perspective.  The media fails to emphasize the fact that Starbucks isn’t doing so hot in the UK; they haven’t been making a profit.  Rents and royalties have been expensive.  Correct me if I’m wrong, but Starbucks is not being accused of doing anything illegal; they are being accused of tax avoidance (i.e., paying as little in taxes as legally required).

Communist Taxes – No Longer an Oxymoron

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Very few people in the United States could possibly remember a time when there were no income taxes, since Uncle Sam has been collecting them for the past 100 years now.  But in the communist nation of Cuba, few people remember what it is like to pay any kind of taxes at all.  Taxes are usually imposed on people who earn money for themselves and accumulate property; communists work for the state.  It will be interesting to see how Cubans respond to the comprehensive new tax code that goes into effect beginning next year.

The state-run businesses which turn all their earnings over to the government appear to be on their way out in Cuba.   The government will still be getting its share, but now through steep taxation instead.  How someone making $2000 per year can afford to pay a 50% tax, I’ll never know.  Many Cubans will need tax relief from day one, or they won’t be able to feed their families.  The plan is to codify 18 other taxes as well (inheritance tax, property tax, sales tax, etc.).  And what about tax collection?  It is a problem in the U.S. even after 100 years, so I expect it will be an even greater challenge for the government of Cuba.

The Nutella Tax

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If you’re like me, part of the appeal of traveling and visiting new places is the FOOD. And vacationing in Europe is expensive enough as it is, but by the time I get a chance to visit, all I’m going to be able to afford to eat is baguettes and water.

The latest food item on the chopping block in Europe is palm oil — a critical ingredient in France’s beloved Nutella. If you haven’t tried it, Nutella is a sweet, chocolatey hazelnut spread that is produced in Italy but consumed primarily in France. The so-called “Nutella Tax,” if approved, would result in a quadrupling of the tax on Nutella and other products containing palm oil. The Nutella company has vowed not to change the ingredients, so the increased cost of production would no doubt have to be passed on to consumers. What the world needs now is tax relief, not nitpicky sin taxes that do little to change behavior!

My tax attorney alter ego in France is blogging right now about how his next trip to the States won’t be the same if he can’t pick up a package of Twinkies while he’s here.



The Danes and the Swizz

Denmark has officially repealed its so-called “fat tax” after being on the books for only one year.  Also, the Danish tax ministry has announced that it no longer plans to move forward with a sugar tax.  In the final analysis, butter, ice-cream, and pastries are just too good to allow some pesky tax to modify a whole country’s eating habits.  Some believe that Denmark would have had more success had it been more focused in its efforts to improve public health through taxation of targeted foods.  However, if the failed soda tax in some parts of the United States is any indication, a tax on specific foods might not be popular either.

In other news…

Kasseem Dean, a.k.a. Swizz Beatz, may or may not owe millions of dollars in back taxes.  Many media sources have him owing the state of New York $100,000 (an amount that Dean suggests is equivalent to the cost of a flight from Los Angeles to New York — I assume he’s not prone to flying coach). Those same sources report that he is also burdened with a $2.6 million IRS tax problem. But Dean, in a barrage of double negatives vehemently denies he owes any taxes.  Celebrity tax issues are usually publicized after the IRS files a tax lien and in that regard are, at least in part, based on fact.  Most likely what Dean means is he is disputing the assessment, which he has every right to do.