Only idiots are disputing that. What the "real" argument is about is the lengths some companies are going to, and how much bend they are putting on the rules to avoid paying it. Company A "lending" Company B (whilst both are wholly owned by the same entity) all of their profit so they don't have to pay tax on any of it, and doing so across borders and at appropriate times of the year so neither company ever pays tax on profit. Holding Companies "selling" subsidiaries to sister companies for £1, just to keep profits of the holding company below tax thresholds, and again selling them back again to avoid the sibling company tax etc.
Corporation tax, the media and the public.
- Thread starter SpeedFreak
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Which is an argument for changing the law, not a green light to avoid tax (IMO).
The simple fact which is often ignored is that large multi-national corporations (via a series of complex tax avoidance methods) are able to avoid paying tax in the UK & undercut local businesses/small traders who don't have the same capability.
The second problem is that excessive tax avoidance causes a deficit in tax revenue which is either covered by increased taxes on those who can't avoid them (causing the first problem to become even greater) or by reducing government services (some of which the population relies on).
It's hardly in the spirit of fair competition if certain groups can avoid paying tax, but others can't.
Correct.
Soldato
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Where do you draw the line though?
We have two limited companies and we regularly move money between both. It sounds complex when written in prose but it's really not.
We have two limited companies and we regularly move money between both. It sounds complex when written in prose but it's really not.
i don't know why hmrc don't take these things to court - clearly some of the things starbucks etc do is not in the spirit of the law and needs to be examined by a judge - they are taking the mick basically.
Probably because Judges don't often make decisions on the spirit of the law, they're more 'letter of the law' kind of people
. If the law's bad or wrong, their hands are tied unless they can find some excuse or technicality that makes it different from cases that have gone before.Probably because Judges don't often make decisions on the spirit of the law, they're more 'letter of the law' kind of people
surely they can interpret the intent of the law - judges have quite a bit of leeway and can set precedents??
Most of this either isn't possible or wouldn't work, so I'm not entirely sure where it's from. In the UK, if you lent someone your profit you've still made a profit and you still calculate tax on it. If you sold something to a related party at a value that wasn't market value, most tax authorities would ignore that and charge you tax on the market value.
Problem is that a lot of the time some other judges have already set the precedent. And there's little judges can do to go against it, unless they can find something that differentiates the case and allows them to ignore it.
The only thing that is likely to help is new legislation.
Associate
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I don't have a problem with being smart about maximizing ROI, but clearly some large companies are taking the pee, and I strongly disagree with them using offshore companies to funnel money out of this country. If they were using tax avoidance within the UK, then at least that money would be available to spend on more staff/more offices/more R&D, but when they take it out the country we're effectively being robbed. In a normal company you would buy something from them and 20% of the price pre-VAT would end up with the government and available for schools, NHS etc, but what it actually happening is they are just sending that money off to a foreign entity.
The difference is larger if you remember to include savings from employer's and employee's NIC
Man of Honour
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Arms length transactions should be the case so if that is applied universally then that should mean such situations aren't possible as you say.
There's a third way that might apply depending on how far through the court system the judgement was pronounced - higher courts are not bound by lower courts so they can overrule but in high profile tax cases that's likely to be a limited option since similar cases have probably already been decided in the HoL. Then as you say only distinguishing or new legislation is the way to go.
It's also worth considering that naked judicial creativity is generally frowned upon - unless you're the ECJ and then it's de rigeur. This does mean that courts will normally try to only apply the rules as given rather than providing an interpretation which might be more in keeping with what they think is equitable - if the courts are unhappy they'll normally note it in their judgement that this should be revisited by the legislators (albeit that suggestion might be ignored).
It is not immoral at all. When you consider a contractor has to pay:
Corporation Tax
Employers NI
Employees NI
Income Tax
VAT (although VAT isnt paid directly by the contractor)
Incurs expenses
For the privilege of having no job security and no benefits.
I did mention that earlier...The difference is larger if you remember to include savings from employer's and employee's NIC
Just pointing out it's not Tax + NI vs Free.
Interesting (and correct imo) view from respected Tech market analyst Richard Holway: http://www.techmarketview.com/ukhotviews/archive/2012/12/03/fair-taxes
Soldato
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I find it more amusing that it is the rules which the MPs set that the companies are obeying. If the MPs are that upset, change the tax laws, change them fifteen years ago when labour got into power.
As a bit of background I work in Transfer Pricing. It's my job to help companies comply with the tax legislation for related party transactions. This is largely the transactions that affect the amount of tax a multinational pays in each jurisdiction. Most of the world follows the OECD Guidelines so we all play, largely, by the same ball. Some stricter than others on documentation but the principles remain the same.
The findings from the Publics Accounts Committee were as follows:
It's true, something is clearly wrong if they make consistent losses of that scale. The level of profitability in the country is driven by the functions performed by that country. Distribution attracts a return on sales which basic services like purchasing coffee will be a cost plus. 20% for such arrangements could be deemed to be high. The royalty for the IP however really isn't when compared to some of the ridiculous royalties other large US firms pay. This is pretty much where my agreement with the committee stops.
On Amazon and Google they bang on about where revenues are located. I don't care where revenues are located and revenues don't equal tax. Tax is based on profits. Profits are based on functions performed (the more risk, the more return).
Take Amazon. The UK staff broadly pack something in a box. The US parent will organise the website hosting, decide on strategy, manage which products and categories end up on the site. Let's say Amazon make an 8% net profit overall per product. Why should the UK get that whole 8%? They should really get closer to a 2% operating margin for being a limited risk distributor. Hell, they might even be classified as a service provider of packaging which is cost plus.
Google is even less driven by the UK. They have a few R&D staff and that's about it. The search engine (their key piece of software) is all US.
HMRC are seen as one of the most objective authorities in Europe and companies are glad for it. Enquiries usually lead to a settlement based on core principles with evidence. The year long enquiries by the Italians and outlandish claims made only lead to companies not wanting to do business there and that will take away a lot of tax.
I'd like to point out that this isn't the case. It's media rubbish. If a company lends money to it's related party then it needs to be able to support the arm's length nature of the interest and whether the borrower would even be lent that amount.
Starbucks setup for purchasing coffee isn't complex. The mark-up is high and should have been queried by HMRC no doubt, but having a central purchasing team is efficient. The IP licensing is done by most companies to receive a return on marketing but yes, it is funnelled in a way that benefits them by reducing tax. Funnily enough, the UK are trailing an item called Patent Box that taxes profits from products with an exclusive patent in at 5% to attract tax back from these areas.
On a side note, in case anyone knows my employer, the views are that of my own, not my employer.
The findings from the Publics Accounts Committee were as follows:
It's true, something is clearly wrong if they make consistent losses of that scale. The level of profitability in the country is driven by the functions performed by that country. Distribution attracts a return on sales which basic services like purchasing coffee will be a cost plus. 20% for such arrangements could be deemed to be high. The royalty for the IP however really isn't when compared to some of the ridiculous royalties other large US firms pay. This is pretty much where my agreement with the committee stops.
On Amazon and Google they bang on about where revenues are located. I don't care where revenues are located and revenues don't equal tax. Tax is based on profits. Profits are based on functions performed (the more risk, the more return).
Take Amazon. The UK staff broadly pack something in a box. The US parent will organise the website hosting, decide on strategy, manage which products and categories end up on the site. Let's say Amazon make an 8% net profit overall per product. Why should the UK get that whole 8%? They should really get closer to a 2% operating margin for being a limited risk distributor. Hell, they might even be classified as a service provider of packaging which is cost plus.
Google is even less driven by the UK. They have a few R&D staff and that's about it. The search engine (their key piece of software) is all US.
HMRC are seen as one of the most objective authorities in Europe and companies are glad for it. Enquiries usually lead to a settlement based on core principles with evidence. The year long enquiries by the Italians and outlandish claims made only lead to companies not wanting to do business there and that will take away a lot of tax.
I'd like to point out that this isn't the case. It's media rubbish. If a company lends money to it's related party then it needs to be able to support the arm's length nature of the interest and whether the borrower would even be lent that amount.
Starbucks setup for purchasing coffee isn't complex. The mark-up is high and should have been queried by HMRC no doubt, but having a central purchasing team is efficient. The IP licensing is done by most companies to receive a return on marketing but yes, it is funnelled in a way that benefits them by reducing tax. Funnily enough, the UK are trailing an item called Patent Box that taxes profits from products with an exclusive patent in at 5% to attract tax back from these areas.
On a side note, in case anyone knows my employer, the views are that of my own, not my employer.
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Do you what I find completely stupid? The fact that this government has slashed HMRC's budget. For every £1 invested in HMRC, £10 is recovered in taxes. It makes no financial sense to make cuts like this. And yet that's what this government has done for ideological reasons.
Cameron loves to talk about immoral tax avoidance but he's done nothing but make it easier.
Cameron loves to talk about immoral tax avoidance but he's done nothing but make it easier.
http://www.bbc.co.uk/news/business-20624857
Just seems rather stupid to be honest and nothing more than a cynical publicity stunt to appease customers. Have more respect for Amazon and Google for sticking to their guns.
Just seems rather stupid to be honest and nothing more than a cynical publicity stunt to appease customers. Have more respect for Amazon and Google for sticking to their guns.
Soldato
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Don't really understand what they are proposing. It sounds like they are going to pay a set amount regardless of their profits but I'm not sure you can just over pay like that can you?
Sounds to me like something to say now, knowing full well in 12 months time everyone would have forgotten and they'll just pay a small amount again.
You essentially tell HMRC how much tax you want to pay and they take it out of your bank account. They'll only come knocking if your accounts say you should be paying more than you've actually paid them.