The stigma of tax havens

Some time ago, my managing director approached me to open two offshore entities. These entities would use overseas-directed resources to carry on business and derive income in Australia. And yes you guessed it, as instructed by him, the country of designation for these entities was a tax haven.

I was never very comfortable with the idea of tax havens. So it was with much interest that I read 'Offshore and out of line' (Ethical dilemma by Tiina-Liisa Sexton) and 'Turning up the heat on tax havens' by Jennie Granger in February's INTHEBLACK.

My situation occurred some time ago, just before we started receiving tax alerts that the ATO was tightening up this kind of activity. I was then, as we are being advised now, extremely mindful of the stigma and purpose of tax havens.

I proceeded with caution, observant of my professional and ethical obligations and conditional upon clear communication to my MD that any funds flowing offshore would be after Australian tax was paid. Or if funds were coming back onshore, subject to Australian tax at the applicable differential rates.

To assist with establishing the offshore entities, we engaged four chartered accounting firms, including our regular firm, a local firm that was an offshore specialist, and two large international firms represented in the designated country (haven).

We received assistance from senior managers of an Australian bank that was represented in the haven. These experts made the process effortless, and I was amazed at just how easy creating these types of structures abroad was.

Finally the operations for these entities concluded, and with a small sigh of relief the entities were wound up. This was also relatively effortless.

Ultimately, the lesson here is, while our operation was legitimate, others with an established structure, assisted by eager-to-serve experts and a good amount of miscommunication (lack of transparency and information exchange), inherently legitimised by the current system, may and can easily become invisible.

It's usually warm and sunny in most tax havens. It will be interesting to see how much heat offenders feel when the temperature begins to rise.

Hugh Reedman ASA
Via email

'Unstoppable growth' is nonsense

The article by Clifford Coonan on the China resources boom and the remarks by Owen Hegarty he quotes in it ('Boom towns rock', February INTHEBLACK) cannot be allowed to pass without comment.

Present rates of resource consumption are already literally burning up the biosphere in which humanity lives. To suggest that these rates can be increased in 'unstoppable textbook economic growth on a scale not seen before' is, to put it politely, nonsense.

Our profession of analytical thinkers dealing in hard facts ought to be taking a lead in the development of rational alternatives to business models that are premised on unending growth in consumption.

Kevin Rattigan ASA
Via email

Cynicism about work is well deserved

I wish to comment on the observation made by Robert Lopez (Feedback, February INTHEBLACK), which attrib-utes the skills crisis to the Generation Y work ethic.

My perspective is that of a man born in 1958, so theoretically I am a Baby Boomer. During my career I have seen downsizing and mass retrenchments, and I have been retrenched twice myself. As soon as business ebbs, staff are shown the door. All too often the employees who survive the 'downsizings' are those who work long hours. This is the saddest observation of all: those who lack talent and initiative but work 10 and 12-hour days prosper, but those of us who prefer to have a life outside work are the first to go.

This is the case today, general managers publicly congratulating employees on their promotion, because they 'put in long hours'.

My own work ethic is that anything I do is just a job, and never a passion for knowledge or excellence. Sure, I do everything as well as I can, because I have pride, and it also helps my survival. But still I regard my employment as just a job, because business has treated me and many like me as disposable commodities, resources to be hired one minute and retrenched the next, and expected to work 50-hour weeks.

The younger generations are cynical about work and career, and this is because we have made them so. Too many businesses have put too much effort into looking into next month's share value. Not only have those businesses suffered the consequences of their actions, all businesses have been tarred with the same brush.

Is there an answer to this? I'm afraid not, because we have a new generation of employees who have been born and raised in this environment, and know of nothing else but to look out for themselves.

Mark Morey CPA
Via email

Larger firms more attractive for grads

In regard to Robert Lopez's letter (Feedback, February INTHEBLACK) he only needs to look as far as the current job ads on employment websites to discover the answer to his concerns.

According to the Chandler Macleod Salary Survey, the typical graduate accountant earns an average of just over $45,000.

But a quick glance over the employment ads placed on the internet reveals that in order to earn this salary it is necessary to work in the major cities, and that most firms offering this level of income are medium-to-large in size.

The smaller accounting firms, and in particular, country firms working in public practice, either cannot afford to or are not willing to pay talented graduates what they expect in order to keep them on board.

Why would a recent graduate undertake lower-paid work when larger firms are offering more pay and more flexible work commitments?

Money is not everything to a young accountant but it does play a major role in choosing an employer.

Brad McGowan ASA
Via email

Let's not confuse rent and mortgage payments

With reference to 'Learn to love your super' (February INTHEBLACK), comments were made that, 'Before retirement, renters and home owners tend to have similar housing costs, because rent and mortgage payments absorb about the same portion of income.' This does not ring true for me, and I suspect for many others.

My husband and I rented a three-bedroom house with a large yard in far north Queensland for $330.00 per week six months ago. We then bought a similar three-bedroom house with a large yard nearby, and our mortgage repayments are $600.00 per week.

My income has not increased during that time, but my husband's income has increased by about $40 per week. The difference between rent payments and mortgage payments are not similar and do not represent a similar portion of income, they are poles apart.

Megan O'Neill ASA
Via email

When entry level becomes exit level

Rather than looking from the bottom-up and labelling Generation Y as potentially lazy or less knowledgeable than predecessors, practitioners need an understanding of the profession at the bottom levels.

At the entry level for graduates or undergraduates, the job requires very little technical knowledge and is driven by sophisticated software that performs the bulk of calculations without users even realising it. A graduate's knowledge is rarely challenged, and more importantly, rarely relevant to performing the job, at least for the first four to six years, at which point it is then outdated to an extent.

With ever-increasing frequency undergraduates are employed to perform the same jobs as graduates, and are remunerated at a similar level. They may also advance faster than their graduate colleagues due to length of tenure rather than knowledge held. To the graduate this obviously devalues the degree and CPA units achieved, and may bring them to reconsider their direction.

With consideration for the training commitment of a young accountant (university, qualifications and ongoing advancement) it is no surprise the profession is less attractive, particularly in an area as technical and time-consuming as tax.

Through my experience, over the past three years a graduate would have made between $30,000 to $45,000 p.a for the first three years of their career, with a similar outlook for the next three to four until qualified and established.

In contrast they come across year 10 graduates who have been in the workforce five years longer, have savings behind them and are earning as much as $45,000 as sales clerks and $65,000 as tradespeople within three years of entering the workforce.

These people are now in the property market paying off homes, have quite a nice nest egg and are on decent wages. Young accountants on the other hand are paying off the university debts incurred, earning an inferior wage, can ill-afford to purchase a home, and still have many more years of technical training ahead of them.

It's quite obvious that I am the 'young accountant', or at least I was. After graduating and then working for three years in public practice, and with two CPA units remaining, I am presently out of the profession.

I am choosing to cut my losses and find a new career direction while spending some time overseas and gaining what I can out of the next few years. The last six years were spent studying seemingly forever, building a debt, spending most of my days performing data entry, and pursuing a career that appeared as if it would never advance because you could never do enough.

How could the situation be corrected? I'd suggest greater financial reward for attainment of further education and training. Perhaps it is time a union was formed to represent young accountants who are possibly victims of their own profession and its attitude to keeping expenses low and profits high.

Daniel Milner ASA
Via email

Care to comment on any business or accounting issue, or want to let us know what you think of INTHEBLACK? Send your feedback to: INTHEBLACK.inbasket@itechne.com. Letters should be kept to fewer than 250 words, and may be edited for length and style.

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Reference: April 2008, volume 78:03, p. 10-11