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back to article Firm-Who-Must-Not-Be-Named's tax dodge profit shift? Totally legit

HMRC chief exec Lin Homer admitted yesterday that there was little the tax authority could do to stop big firms like Amazon, Google, Facebook and Starbucks moving their profits abroad to avoid tax. Homer told MPs on the Public Accounts Committee that it was up to multinationals where they were headquartered and where certain …

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Fair play to them

If I had the option of not paying a load of tax, I'd definitely take it. Sick of having the government PISS MY OWN MONEY INTO MY FACE. It's not like they can even be arsed to empty my bin half of the time and that's one of the few things I'm supposed to actually see from it.

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Anonymous Coward

Re: Fair play to them

You do know that every penny they move offshore increases your tax bill don't you?

Sticking it to the man is one thing, sticking it to the man by shitting in your own shoes is just stupid

What they are doing may be ok in a legal sense but it is certainly morally wrong

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Boffin

Re: Fair play to them

When the goal is maximizing profits, morality, ethics, civility, reason, etc. are abandoned, and greed becomes the only driving force.

"What they are doing may be ok in a legal sense but it is certainly morally wrong" - AC

Corporations exist to extract as much money from the flock as possible, by providing the worst possible product at the highest possible price.

Never forget that.

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Re: Fair play to them

Yeah, you realise they're ruining it for the rest of us, right?

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Re: Fair play to them

More importantly, they're ruining it for their own staff, and their own workers. Just like Germany is finding, you may be doing well temporarily, but if all your customers' economies collapse, you'll soon have no customers. The same, on a smaller scale, applies to large companies. Once they're having a large enough effect to suck cash out of economies. If everyone has to pay more tax, they'll feel poorer, and may cut discretionary spending, such as on coffee...

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Re: Fair play to them

you do know that central govt. is not in the bin emptying business dont you?

it would appear not

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Happy

Re: Fair play to them

Naughtyhorse,

Well MI5 do have a specialist bin emptying department. It's quite easy to gain access to their services. It just requires associating with certain individuals and/or visiting the correct websites. As an added bonus, not only will your bins probably get emptied every day, you won't be able to fly on Ryanair either. What's not to like...?

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Anonymous Coward

Re: Fair play to them

I get what you mean. Except that the companies lowering their tax bills results in high pay and conditions for those at the top, big bonuses and the like.

While those people lower down doing all the work get hit with huge income tax bills which could be halved if the globalised businesses paid their way.

Is it right that hard work in the UK generates big profits that are then moved to Ireland and used to fund Ireland's political ambitions?

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Mushroom

You do know that every penny they move offshore increases your tax bill don't you?

I don't agree with that viewpoint.

I believe politicians would squander any additional revenues they gained.

They've been caught with their snouts in the trough over expense claims.

Any additional funds would be used to buy votes from the electorate and WOULD NOT be passed back to the PAYE taxpayer. Anyone who thinks they would is deluded.

Full props to the HMRC for pointing out that they are NOT going to be the Government's Whipping Boy.

MPs can complain all they like but only they make the laws. Their constant calls of 'immorality' is yet another indication of their inherent incapability to acknowledge their own failings. Just like expense claims, politicians will always try to deflect any valid criticim against them by trying to divert public attention from the real issue: their incompetence.

This sort of thing (tax evasion) has been going on for decades under successive Governments - both Labour and Conservative. To 'cry foul' now is complete hypocrisy.

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Re: Fair play to them

No. They're moved to Ireland because Ireland has a lower tax rate on profits.

The LOSSES however are kept here because they can be used as an offset to whatever tax they do pay.

As well as charging whatever intellectual property rate they like....it may well be that a company in the coffee biz charges 25p/cup as an intellectual property rate !

That is up to them.

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Re: Fair play to them

It's not the like the companies aren't paying any tax at all. They are paying business rates and employers NI. In fact corporation tax makes up a small part of the overall tax receipts for the country. Only 9%. The vast majority of the country's tax is made up NI, Income Tax, VAT, Fuel Duty, Council tax and Business rates.

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Anonymous Coward

Re: Fair play to them

anyone who can shaft HMRC is a winner to me - our 'government' confiscates shed loads of money of us all from the moment we wake until the moment we sleep and then they go and fuck up the economy and blame someone else for it (and don't try to tell me that no one in 'government' knew and understood what the bankers were up to).

A fair tax system is one thing but what we have is not that.

In the UK, ambition is punishable by tax.

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FAIL

Re: Fair play to them

So you're happy to pay more tax - so big business can pay sod all?

Really???

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Re: Fair play to them

Bollocks.

They're not shafting HMRC or the government, they're shafting us.

Ambition is not punished by tax, tax is levied on profit. People and companies are entitled to claim a large amount of things against taxation, they take the piss by allocating their profits to offshore artificially-low taxation areas, while allocating any loses to this taxation area. Two bites of the cherry.

I won't even go onto the banks, who received large amounts of taxpayer money (ours, not stinkbucks) to purchase back government bonds, and then shifted the money abroad to avoid taxes, while still claiming relief on their self-imposed losses while NOT lending it to anyone (which was the whole idea) (and why does a bank need over 300 foreign "branches", many located in low-population islands ?

If they don't want to pay lax on profits earned here, ok. Then they can fuck-off and let the gap in the excessively-priced non-essential hot drinks market be taken by small shops/companies that cannot afford the price of expensive accountants setting-up false-front companies to avoid tax .

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Anonymous Coward

Re: Fair play to them

you fuckin idiot, of course ambition is punishable by tax - if you want to sit on your arse and do nothing except watch the shite on tv then you dont get clobbered; however, if you decide to go for a better job, better house etc etc then you are hammered by the taxman - you making more money sir, that'll cost ya.

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So cancel corporation tax

and double VAT. Or something similar

Seems logical that the tax should be paid in the country where the product is delivered.

(Standing by for thumbs down.)

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Re: So cancel corporation tax

Or perhaps remove the "vat-free" element of purchases for use within the business. Yes, that should lower profitability of all businesses operating in the UK (thus lowering corp. tax take), but the more regular payment cycle and unavoidability advantages of VAT collection would probably compensate.

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Re: So cancel corporation tax

Double VAT? You know that companies claim back VAT they pay themselves, although would you really be happy that an extra 20% is added to your weekly shopping list?

It's really quite simple what is happening, company A is a large multi-national and buys lots of stuff from all over the world, it'll post it's profits against the stuff it's buying, not just in that country, but from all over the world. So in the UK the company buys nothing at all, nada, zilch, it just sells stuff with parts bought in Canada, shipped to China where it is assembled and then shipped to the UK where it's sold. On the profits chart though it lists all the costs it has incurred in Canada and China which makes it look like there is no profit, so there is nothing for Mr Taxman to tax.

I wouldn't suggest any company would use this tactic for reporting tax in every country as an over-all tax dodge.... "US profits reported against worldwide outgoings, UK profits reported against worldwide outgoings, China, we don't sell much here so lets say we're making a HUGE loss because we're spending a fortune on making stuff here"

From memory it's crap like this that the film industry use so when a film makes billions of dollars (i.e. Star Wars) the film company can report the film as a loss so they don't have to pay the stars much money if they have in their contract that they get a % of profits.

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Unhappy

Re: So cancel corporation tax@ David Webb

So make VAT reclaimability based on paying an appropriate level of corporation tax, or having a valid excuse for not declaring a profit and paying tax (eg startups, genuinely exceptional losses). It really is that simple. And no offsets or witholding element, so that anybody trying to do tax tourism ends up paying both countries tax.

At the moment the complete w@nkers at HMRC will hound me to death's door over submitting a f***ing tax return (even when all my income is through PAYE), but when Google tell them "sorry, made no UK profits on our UK revenues of $4bn, we're just operating here as an act of charity", the HMRC tw@ts go, "oh, alright then", and go back to polishing their pension statements.

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Re: So cancel corporation tax

Allowing companies to claim back VAT is an important part of how VAT works, it's where "Value Added" comes from.

Imagine a company buys bits costing £120 (inc VAT), does some work to them and sells for £50 profit. Currently they claim back £20 VAT, making a sell price of £150+VAT = £180, of which the taxman gets £30.

Your proposal is that they shouldn't claim the £20 back (i.e. the taxman still gets it), so would sell for £170+VAT = £204. The taxman gets £34 on top of the £20 it already got, £54 total. And that's just from one step. If that company was selling to a shop, they'd add their margin plus tax; each step effectively taxing the tax that's already been paid. The companies are no better or worse off, it's only the end consumer who suffers. It means that just to buy something and sell it on at no profit you have to add another 20% tax to the price.

The whole point of claiming back the VAT then adding VAT to the new sell price is that the increase in the Total VAT is just the VAT on the Added Value, not the VAT on the VAT on the VAT on the.....

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Re: So cancel corporation tax

There's no easy solution here, but from a 'fairness' perspective it has always struck me as odd that corps have all the advantages of 'personhood' and very few of the disadvantages. For example a corp can 'live' forever so it's assets are never subject to inheritance taxes. Corp directors and officers, although in some cases technically liable for illegality of the Corp, are frequently shielded by several layers of non-accountability.

And, of course, the big one - individuals are taxed on their income while Corps are taxed on their profits. I understand the basic rationale here, since most companies make losses in their first few years, or periodically because every so often they might need to invest heavily in capital goods etc. But I'm sure that a way can be worked out to balance the needs of startup companies with the proper taxation of humungous corporations.

For example, tax a company on profits for X years, and on its revenue thereafter, with safeguards in place so a company can't just create a new subsidiary every X years and reset the count.

Loopholes for individuals are hammered shut by executive decision at HMRC without needing new legislation, I don't see why teh same cannot be done to corps

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Re: So cancel corporation tax

> For example a corp can 'live' forever so it's assets are never subject to inheritance taxes.

I recently thought it would be amusing to charge an inheritance tax to a company if it changed CEO - which would really sting companies that make a bad choice.

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Re: So cancel corporation tax

never mind doubling it.

if head office = overseas vat=vat!

oh and theres a 3 year waiting list for you to det up a uk head office.

fuckers

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Meh

Re: So cancel corporation tax@hollymcr

I think you misunderstand how the idea of stopping VAT being reclaimable could work. I agree it is currently intended to be reclaimable through the B2B value chain, and thus only paid by the final retail user, but it doesn't need to be in certain exceptional circumstances, like tax dodging globo-corps. That doesn't mean that non-reclaimable VAT leads to a rise in prices.

The companies' asking price is set by what they think the market will take. If Starbucks can't reclaim their VAT because they are a bunch of tax dodging thieves, that doesn't automatically inflate their price (in exactly the same way, have you noticed that their coffee is priced more cheaply at the till because they currently dodge UK taxes? Thought not). If Starbucks were unable to reclaim VAT, they could try and increase their retail price accordingly but customers can then save 20% by going to Costa, or they can choose to pay the extra, and effectively pay Starbucks corporate tax bill on their behalf. The same applies in a B2B context, that Google's prices to business advertisers only change if Google wish to, in reality the market wouldn't accept a 20% hike in rates.

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Re: So cancel corporation tax

From memory it's crap like this that the film industry use so when a film makes billions of dollars (i.e. Star Wars) the film company can report the film as a loss so they don't have to pay the stars much money if they have in their contract that they get a % of profits.

I believe that it is called creative accounting.

Perhaps a new idea may have to be instituted - creative taxing.

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Happy

Re: So cancel corporation tax

Make perfect sense, seeing as only people pay corporation tax anyhow.

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Re: So cancel corporation tax

Shareholders are subject to inheritance tax on the value of the shares. If the company also paid inheritance tax, then you would have double taxation.

Individuals who trade on their own account pay tax on profits calculated in much the same way as companies. There are a couple of differences related to motoring expenses and expenses with a dual private/business use but other than that, it is pretty much exactly the same.

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Re: So cancel corporation tax@hollymcr

@ledswinger Nothing in your proposal would target the tax "dodgers" specifically so it solves nothing. And I quoted "dodgers" not because I approve of what they do, but because they are doing nothing illegal.

The current system of competition between nation states means that countries like ours lose out through bring uncompetitive. That's an argument for better rules or for being more competitive. It's also an opportunity for companies to gain a competitive advantage by promoting themselves on how much tax they pay; a sign outside Costa "We pay 20% of UK profits in tax" or similar, although of course I have no evidence that Costa are actually any better than Starbucks. A "fair tax payer" charter that companies could sign up for would help.

Trying to make a law to specifically target Starbucks gets you nowhere.

Increasing VAT and reducing corporation tax is the only sensible suggestion I've heard so far but I'm sure there's reasons that won't work too. (How to tax the profits of UK companies that they make though non UK sales for example.)

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Re: So cancel corporation tax

You Jest ?

The VAT is paid by the CUSTOMER not the company.

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Re: So cancel corporation tax

So you would like us all to pay 40% VAT? You must be joking or not thinking.

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Re: So cancel corporation tax

@Ivan 4

Who do you think actually pays corporation tax? Here's a clue: what do you think would happen to retail prices if corporation tax went up?

At the moment, your cup of Starbucks includes corporation tax (but not UK corporation tax), and VAT. The argument goes that if you dropped corporation tax to zero and increased VAT to compensate, then the total tax take would be the same, the retail price would be the same, but now all the tax would be paid to the UK (i.e. the country the profit was generated in).

Personally I'm pretty confident the idea has as many flaws as the current system, although I'm too lazy to work out what they are. But it's a nice idea in principle.

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FAIL

Yeah there is nothing they can do - unless you are small fry

http://www.hmrc.gov.uk/avoidance/spotlights8.htm

HM Revenue & Customs (HMRC) are aware of schemes seeking to exploit sideways loss relief by generating trade losses for individuals. Typically, a large loss is generated, either in partnership or alone, by accounting for the arrangement as a trade and either writing down the value of trading stock or claiming deductions or allowances for purported trading expenditure.

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Stop them being able to make a loss and setting it against their profit, I would assume they can ask to see their international costs & royalties and make sure they are uniform worldwide. That would stop them adjusting transfer prices to be higher in the UK.

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Re: Yeah there is nothing they can do - unless you are small fry

Or, as I'm sure I've posted before, the EU can declare that royalties paid to parent companies* are not tax deductible.

*companies with more than a certain shareholding or whatever. There are thousands of EU officials, I'm (fairly) sure they could come up with a suitable definition.

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@stratman

Doesn't help. Take Starbucks as an example. I think that they buy their coffee beans from a company in Switzerland. That company can charge Starbucks UK whatever they want. Now you want to make coffee non tax deductable too? What about printing? cleaning chemicals? cups? There are a million products or services that these companies buy that could all be charged at any rate they want so fhat the profit appears wherever they want.

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Sales are income to corps, so what about salary.

So,

Why can't I have my salary paid into a country of my choice and avoid paying (or pay a lower rate) income tax? If corps are allowed to take their earnings, move it to another country and pay tax there, why can't I take my salary to another country and pay tax there? As always, one rule for corps and one for the little people.

Jimmy Carr was vilified by the PM no less for using a mechanism that until recently was completely legal to avoid tax in much the same way the corps are. Of course, they'ev now implemented a law that basically says any mechanism created solely with the purpose to avoid tax is illegal, which effectively makes that sort of thing illegal. However, if moving your money to another country to pay tax there and not here is not a mechanism created solely with the purpose to avoid tax, what is it? Seems like the politicians are only worried about dodging tax when it's people and not when it's corps.

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Re: Sales are income to corps, so what about salary.

its been there for years, prohibition of the use of artificial structures to avoid tax goes back to the middle of last century.

Now we are finally seeing HMRC & the government start to discuss the issue as are the UN.

http://www.un.org/esa/ffd/tax/documents/bgrd_tp.htm

Now the question is can the electorate force them to do something?

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Re: Sales are income to corps, so what about salary.

Companies can't just declare that all their profits are earned in for example Ireland. They have to employ staff in Ireland to earn that bit of profit. You could possibly move to another country, find a job there and pay tax in that country, and that is perfectly legal.

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Anonymous Coward

Re: Sales are income to corps, so what about salary.

"Companies can't just declare that all their profits are earned in for example Ireland. They have to employ staff in Ireland to earn that bit of profit. You could possibly move to another country, find a job there and pay tax in that country, and that is perfectly legal."

Funny thing is that when the company I work for was UK owned it made a healthy profit, but since being bought out by an Irish company and becoming a wholly owned subsidiary of that Irish company it has not made a penny profit! Yet there us still plenty cash for directors' pay rises and share options! Amazing!

Anonymous because I still want a job.....

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Anonymous Coward

We need more businesses to see the UK as a 'low tax' option...

That way we can get a smaller cut of a much bigger pie...

Rather than a large cut of a tiny pie...

Right now all we really get from the big multinationals is VAT and Income tax from their workers...

IF we were to reduce their tax liability as a %, then they would see the UK as a much better option to base operations in and then we'd see a cut of their profits usually moved offshore...

for those of you who can't grasp that idea... think of it like this...

Company A has a turnover of £1000000 in the UK, £500,000 is expenses such as materials, wages etc...

the other £500,000 they 'pay' to their parent company based in another company, and as such is now profit of the offshore company NOT the UK company... WE get zilch....

IF the tax liability in the UK was lower for them, they would not move that £500,000 profit from the UK abroad, and would pay some tax on it.. great, BUT the same company may make £10,000,000 global profits, so IF they were offered a very low rate here, lower than they pay elsewhere, say at 5%, they would pay the tax to the UK, and our tax receipts go up, not down....

SO basically a higher tax rate here than abroad causes businesses to offshore profits, loosing the UKGOV money...

Downvote away for my suggestion of giving them lower tax rates...

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It worked in Ireland, right up to the point that we had a financial collapse.

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Surely Ireland's financial woes was mainly due to its over-inflated property development bubble bursting, rather than having megacorps employing locals?

Also don't a number of British companies act in the same way and funnel profits to wholly-owned subsidiaries based out of a holding address in the channel islands? (that lovely near-shore tax haven)

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Anonymous Coward

Your logic is infallible, except that if we offer 5% tax rates, somewhere else will offer 2.5% tax rates, and eventually we will get fa.

Taxes aren't some kind of mean government conspiracy against the poor down trodden multinational - taxes pay for services, and every one and every company uses those services. I reckon our best bet is withdraw all govt services from companies that don't pay tax - so that means no police, no courts, no use of roads, rail, airports, no ambulance response if someone gets ill on their premises, charge them up front for the costs of educating their workforce, and their staff's subsequent care in old age.

Given that this, like most things in life, is probably all the fault of layers, just removing the right to courts should do it. Put a 'do you pay fair tax?' question at the start of any civil court case. If the answer is no you lose, automatically, no right of appeal. So the purveyor of finest Swiss coffee beans will immediately get sued by the barristas of Totnes, on the grounds of selling coffee in rectangular cups with rounded corners, and lose. Totnes will then have billions of dollars to spend on useful things, like high altitude ballooning and collecting antique enigma machines.

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Anonymous Coward

lawyers even

layers = lawyers

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Mushroom

"We need more businesses to see the UK as a 'low tax' option..."

That will just result in a race to the bottom. As long as there are places that are effectively zero-tax, there is no way that the UK can ever compete. I don't see why a high* tax rate will deter most of these companies anyway. For example, if Starbucks had the option of either paying their proper taxes (and still rake in a good chunk of profit from the UK market), or else not operate in the UK at all, they surely will prefer the former.

*relatively high compared to corporate tax in other countries. In effect corp tax rates are lower than individual rates, AND they pay tax only on profit not on revenue, so they REALLY should not be allowed any further loopholes.

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great point,

except of course it's bollocks. if the tax rate was set such that the tax liability of these bastards was 1p more than what they are currently paying then nothing will change. And setting it 1p less would start a dash to the bottom

it was bollocks when thatch was banging on about it in the 80's and it's still bollocks today.

most right of centre fuckwits dont lke to pay tax as a matter of principle, the rate is irrelevant. most suits are right of centre fuckwits. the only way to make them pay is to make it impossible for them not to pay. tax em on whats in the tills

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Facepalm

"it was bollocks when thatch was banging on about it in the 80's and it's still bollocks today"

I think in the 80s the top tax rate was in the 70s or 80s, in that context, yes, bringing tax rates down DID help the economy to improve (after all why should any entrepreneur start a business if 75% of their profits are being taxed away?). So it wasn't bollocks at all in Thatcher's / reagan's time.

It IS bollocks today because the actual rates are so much lower. The 'Republican party-style' idiocy / mathematical fail is that this can be extrapolated indefinitely, while really there is hardly and benefit to be gained from lowering top rates below around 30%

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race to the bottom

The race to the bottom argument is exactly why no item in Tesco, Asda, Sainsburys etc costs more than a penny. Oh, hang on...

Competition promotes efficiency. Remember that we are talking about companies who effectively pay zero UK corporation tax because they can shop around, exactly as you can do when you buy a tin of beans. The companies do generate UK tax in the form of employee income tax and VAT because they have no choice. If we're dead set against competing on corporation tax then finding ways to increase the revenue from less "optional" taxes would make sense. But if we're not careful consumers will lose out.

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Anonymous Coward

Re: race to the bottom

No it's because supermarkets are in a price fixing scam. They don't really want to seriously undercut the competition because they know it does end up in a race to the bottom and nobody makes any profit. They already sell key items below cost price to bring people in, they don't want to add too many to that list.

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Re: race to the bottom

@AC 20:01

So the argument is that competition results in a race to the bottom, except that because of self interest it doesn't? Isn't that just a long way of saying that competition doesn't result in a race to the bottom after all?

Companies like Starbucks will move money around for cheaper tax rates, but realistically it isn't going to be worth it when you're trading in a country that has low tax rates, even if not the cheapest rates. On the other hand, it is worth avoiding the highest tax rates. There are plenty of things to compete on and price is only one of them. It's not clear cut but surely the idea that a cut in tax necessarily means less tax collected (or an increase in tax rates necessarily means an increase in tax collected) can be consigned to the dustbin now?

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trickle down

you must be kidding,

ronnie could even spot that as bollocks after 1/2 his brain had turned to cottage cheese.

trouble with trickledown is, here we sit in the second decade of the 20th century 30 years after the policy was introduced, and it still aint trickled anywheres

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