back to article The latest tech firm to be accused of tax dodging: Microsoft

Microsoft is the latest tech firm to be tarred with the "immoral" tax-dodger brush after a report accused Redmond of funneling £1.7bn in UK revenues through Luxembourg and Ireland in order to legally avoid paying tax here. The Sunday Times reported that the IT giant was sending its British earnings from new operating system …

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Anonymous Coward

The solution is simple

Change the tax law for large multinationals. For gods sake, the Chancellor and HMRC continuously change it for individuals, so lets do the same with those companies that put in tax regimes that export profits to low or non-tax paying countries.

For those companies that deliberately export their profits, change the tax regime so that they are taxed on gross revenue or turnover, not gross profit.

AC, because, well, I work for a little known company that exports it's tax to a well known country associated with cuckoo clocks.

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Anonymous Coward

Re: The solution is simple

The problem is that it's often legitimate to export profits to the parent company. It's actually required by the EU for free trade within the Eurozone, it's the improper use of the ability to move profits around which is the problem.

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Anonymous Coward

Re: The solution is simple

I don't see much of a problem if the profits *after tax* are exported

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Anonymous Coward

Re: The solution is simple

simpler then that, reduce your corporate tax to below Luxemberg and see all the companies leave there for here.

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FAIL

Re: The solution is simple

From PKF's guide to Luxembourg...

"The general effective corporation tax rate for resident companies is 22.05%. This

consists of corporate tax of 21% and a 5% surcharge for the employment fund.

Companies with taxable income of not more than EUR 15,000 pay tax at 21%.

In addition, a municipal business tax is payable at rates which vary in different areas.

The rate is 6.75% in the city of Luxembourg, producing a combined corporate tax

rate of 28.80%."

UK Corporation tax is 22%, reducing to 21% for 2013/14

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Re: The solution is simple

Yeah AC, cos lowering the tax rate worked so well in Ireland. When theres a boom its great, but when you need to kickstart the economy, one of the critical levers to help that is gone.

What we need to do, is redefine these payments to subsidaries as Dividends, and tax em that way.

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WTF?

Re: The solution is simple

> corporate tax to below Luxemberg

1) It's "Luxembourg"

2) Can you check for me how much the corporate tax is for Luxembourg? I can't remember exactly. I can, however, with 100% assurance tell you that it is not low.

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Re: The solution is simple

"simpler then that, reduce your corporate tax to below Luxemberg and see all the companies leave there for here."

I'm not sure whether you were a moron by birth or whether you had to take classes. This is a popular refrain among those for which thinking isn't a top priority, to continually lower tax rates until they all reach zero. Monaco has zero corporation tax. That'll be great. The point you seem to be missing is that the "competitor" countries are not real countries. Bermuda, Monaco, Leichtenstein, etc., are tax havens. They work on being parasites on other countries' infrastructure. A few parasites suck blood from the host (the rest of the world in this metaphor) and make a nice living off it. If more countries become parasites, the host dies.

It's the same as the complete wanker from Germany who once said "why can't every country be an exporting country like us?"

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Thumb Up

Re: "AC, because, well, I work for a little known company that exports it's tax"

I am often somewhat sarky about AC postings - however in your situation I entirely understand!

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Black Helicopters

Close, but no cigar; was The solution is simple,

The problem is not the tax rate, the problem is the way most governments allow lax transfer pricing laws, that is where the ripoff happens. Most of the transfer payments are not for services and product, they are payments for intangible things royalties and licences.

Have a read of these articles to see how the big corporations use transfer pricing to reduce their tax bills.

Irish subsidiaries helped Microsoft reduce US tax bill by €1.87bn in 2011

“Microsoft Ireland Research reported $4.3 billion of profits in 2011, with an effective tax rate of 7.2 per cent. This income equates to about $11 million of profit per employee.”

Statement from Chairman, Permanent Subcommittee on Investigations CARL LEVIN D (MI) on Offshore Profit Shifting and the U.S. Tax Code (PDF download).

... depicting Microsoft’s transfer pricing agreements with two of its main offshore groups. As we can see from the chart, in 2011 these two offshore groups paid Microsoft $4 billion for certain intellectual property rights; Microsoft Singapore paid $1.2 billion, and Microsoft Ireland $2.8 billion. But look what those offshore subsidiaries received in revenue for those same rights: Microsoft Singapore group received $3 billion; and Microsoft Ireland, $9 billion. So Microsoft USA sold the rights for $4 billion and these offshore subsidiaries collected $12 billion. This means Microsoft shifted $8 billion in income offshore. Yet, over 85% of Microsoft’s research and development is conducted in the United States.

Grubbermants could easily tackle lax transfer pricing laws, if they wanted, however the Amerikian, the UK, the Irish, and just about every other grubberment in the world are quite happy to leave these lax transfer pricing laws in place why??????? Are the politicians afraid that tackling transfer pricing laws may limit their ability to accquire cosy directorships when they retire?????

Just ask the question sheeple; "who really benefits from this?", always follow the money.

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Re: The solution is simple

Ac:

Because you like your job. Did you consider a salary is also an economic good for you and for your country? Even more so than a tax.

Sounds like MS has found a way to contribute to your economy despite imprudent tax policies. Quick! Outlaw that as well!

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Re: The solution is simple @john112

So every company in every country has to pay their workers, what has this got to do with tax?

Having a salary is all well and good, but when that is then taxed to the hilt because the government does not have enough money to run the country, what is the point in even trying to earn a living.

We all know that is the businesses paid their tax it still probably would not mean much lower bills, but would ultimately improve our lives by actually allowing the government to afford the services we want/need. And remember the businesses are using those services also, so why should they not pay?

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Stop

STOP

Surely, if we step back, we can see that the problem here is really quite simple:

- Regulation globally is ill equipped to contend with modern business practices. That was as true ten years ago when, I think, Soros said the world needed to get on top of this problem, as it is today.

So we're just getting caught up in the Government, and its media mouth pieces, posturing and distracting the public from the real economic problems by pointing at these 'unethical' firms, raping and pillaging their land.

I don't approve, but I think it's a sorry effort to complain since we opted into capitalism when we last voted.

In case you'd forgotten, capitalism isn't big on ethics. Look around.

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Unhappy

Re: STOP

In case you'd forgotten, capitalism isn't big on ethics. Look around.

That's true, but what's unethical about complying with the law to legally minimise your tax exposure? That might be against the supposed spirit of the law, but it would be no different from the many MP's who made (and continue to make) ludicrous expenses claims "because they are within the rules". Or the many MP's who undertake significant personal work commitments outside of Parliament because there's no rule that says being an MP should be a full time job (just a full time salary, full time pension, and full time pay-off if you're careless enough to not be elected next time round).

Be assured that the situation can be made worse, and the government are on that case far more so than business. The draft Finance Bill for 2013 is over a thousand pages long. How many MP's do you think have read any of it? It'll be the usual misbegotten, poorly drafted legalistic twaddle, create new loopholes, exemptions and contradictions, and the very length of it tells you that it has had no proper scrutiny and that it will be too complex.

Some people never learn. Unfortunately many of them are called MP's.

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Anonymous Coward

Hmm...

I was thinking that there appeared to be a split between the IT companies who employ people in the UK and those who don't.

Facebook, Google, ebay, Amazon et al employ relatively speaking few people in the UK. Microsoft, IBM, HP, et al employ vast amounts of people.

I wonder how much tax they've paid, how much they've avoided and who's next...

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Re: Hmm...

In a recent thread on Amazon, I had a look at what Amazon were paying, and what they were avoiding, and it appeared that Amazon pay about two thirds of the notionally "full" tax bill. In aggregate national terms, one third of tax liability is business rates, one third is corporation tax (the bit you can try and avoid), and one third is employer's NI. So if you can avoid most of your corporation tax, then you'd avoid roughly one third of the taxes you might otherwise incur.

Obviously the detail is a lot more complicated, but that's how it looks to pan out for Amazon with several thousand UK employees and UK distribution centres. Google and eBay I'd expect to be different because there's no physical delivery, and arguably they'd be proportionately worse in tax evasion (if following the transfer pricing tax avoidance model) than Starbucks or Amazon because these two can't avoid the payroll taxes or rates on its stores, whereas Google and eBay probably don't have much in the way of UK staff or premises.

Taking Google, they are reported as paying £6m of UK tax in 2011. According to their investor presentations they make 10% of global revenues in the UK, making total UK revenues around $3.7bn. Group pre tax margin is around 33%, so that implies UK taxable profit ought to have been around $1bn (after losing say $0.2 or 0.3bn for tax deductibles), and at prevailing tax rates that would have further implied a UK tax liability of $260m, say £170m. So by Google's standards, Starbuck and Amazon are tax saints (although only because they can't avoid the rates and payroll taxes).

IBM and HP do employ more people in the UK and will pay more NI, and more business rates, but they've been critcised for avoiding US taxes, so I'm sure they won't be paying any UK taxes they can avoid. Moreover they encourage their customers to offshore work, so avoiding all UK taxes, and removing jobs from the economy.

So in summary: It's a mess, it loses billions in tax revenues, and motivates all the wrong behaviours. Luckily David Cameron has a finger on the nation's pulse, and is turning his incisive, Sauron-esque attention to the matter of gay marriage.

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Re: Hmm...

Amazon have a whole bunch of low paid warehouse workers in the uk*

*Who's employment we're kinda subsidising through tax credits. Not only does Amazon benefit from UK consumer spending, we effectively pay them to do it by covering part of the cost of their workers labour, rather than have them pay a living wage.

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Re: Hmm...

Starbucks is a franchised operation so the staff in the shops are employed by the franchisee, not the franchisor. I have a particle of sympathy for the shop owners as they are getting the brunt of the attacks even though they are behaving like all other UK shops paying their corporation tax, NI, business rates and so on like the rest.

I still wouldn't go anywhere near them though because their drinks are overpriced and indifferent, but that's another matter.

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Re: Hmm...@Chad H.

"Amazon have a whole bunch of low paid warehouse workers in the uk ...Who's employment we're kinda subsidising through tax credits"

Available to everybody, so hardly Amazon's fault. If the building industry weren't able to rely on such subsidies (and the payment of welfare when there's no work) then nobody would be employed in the UK construction industry full stop. Moreover, tax credits are merely part of a deliberate plan to make the tax system progressive (ie higher earners pay higher tax rates).

Personally I don't think that progressive tax regimes deliver, and a simpler flat rate of 35% of all earnings over £10k would be easier to adminster, but that's not the view of politicians.

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Childcatcher

Re: Hmm...@Chad H.

It's a bit of stretch that noone would be employed in the UK construction industry, I doubt all building would just stop one day.

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Re: Hmm...

Most of Amazons "employees" are agency workers.

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Happy

Re: Hmm...

> we effectively pay them to do it by covering part of the cost of their workers labour, rather than have them pay a living wage.

Why not nationalize them? Then you could have a Queen's Book Distribution Service. Pay the poor exploited underclass good, serious wages with money fresh off the press gracefully granted by Her Majesty's Exchequer.

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Unhappy

Re: Hmm...@Chad H.

"It's a bit of stretch that noone would be employed in the UK construction industry, I doubt all building would just stop one day."

My point was that any industry that employes a workforce on low wages depends on implied subsidies like tax credits, council housing etc, and any industry that employes its workforce on low pay and intermittently (eg agriculture and construction) depend on the subsididy of welfare - otherwise the workforce starve. My language was certainly a degree of hyperbole, but I hardly think that deserves downvoting.

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Mushroom

" but MPs have said that while their actions might be perfectly legal, they're also immoral."

Would these be the same group of people who were given such a rough ride recently for ridiculous expenses claims - quite a few being fraudulent? Experts on immorality! God forbid we should get a Prime Minister whose father made millions from tax avoidance schemes. That could never happen could it?

"The Public Accounts Committee made it clear that it wasn't accusing multinationals of illegal tax avoidance"

Since when was tax avoidance illegal? Perhaps that is why the PAC didn't accuse them.

Can the government's horse gets any higher?

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Dodgy

Any higher indeed. What bothers me most about this is that the capitulation of Starbucks, while great for UK public funds, has established a precedent whereby the government can look at something they don't like, realise there's nothing illegal, therefore set the UK lynch mob of media and screaming masses upon the target and wait for them to cry 'ok, ok, you win!'. How is this different from the insipid whinings about being tried 'in the court of public opinion' by Harman or Wacky Jacky or whoever it was a while ago?

Sorry, but it's a companies duty to act in the interests of it's shareholders. If I was a shareholder, and the company declared a £10m write-off 'because it seems like a fair thing to do', I think I'd be rather miffed.

It might seem like a good idea currently, but this is nothing more than tabloid-inspired lynching, and it won't be long before the same approach is tried on other things where we might not be as keen.

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IT Angle

Re: Dodgy

"Sorry, but it's a companies duty to act in the interests of it's shareholders. If I was a shareholder, and the company declared a £10m write-off 'because it seems like a fair thing to do', I think I'd be rather miffed."

There's nothing to stop us changing that first bit - to act in the interests of its shareholders and the society it operates within by maximising distribution ie dividends and tax. Apart from the lobbying wails that this would be "bad for business".

Starbucks capitulated on the basis that the £10m sop was cheap to avert a tabloid inspired lynching. It's not the multinationals that deserve the lynching though - it's the idiots who developed and approved the rules and treaties that are so easily exploited by said multinationals. If there's a true IT angle, its the lesson that endless patching can easily leave you with a system that you neither understand nor does what you want. To make matters worse, the developers of this system have a vested interest in it being shit while the approvers will approve nigh on anything if told it's "good for business".

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Happy

Pensions,

I'm wondering how much of these "immoral" profits end up being paid out as dividends?

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Holmes

Re: Pensions,

And what proportion of these dividends are paid out in the UK? Far from all of them, one would guess.

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Re: Pensions,

On would hope.

But then exporting money tends to depress the strong pound, so exports become easier.

The strong pound .... of wait ....

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Re: Pensions,

"And what proportion of these dividends are paid out in the UK? Far from all of them, one would guess."

That leads to the next question, which British companies "immorally" avoid foreign taxes to pay dividends in the UK?

But take the current Guardian Baddie, sbux 75% of it's shares are owned by institutional investors and glancing through the list you can see some UK pension funds, I'm guessing msft is no different.

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Facepalm

Re: Corporations avoiding tax

> We have to pay extra tax, in effect, to subsidise the corporations.

You have to pay extra tax to pay the state.

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Megaphone

Correct me if im wrong

But we pay tax on the price of their products already,

they then dont pay tax to our goverment for those products,

meaning were being screwed (no supprise their then),

and so they are litterally taking our tax as extra profit. (so ive got that right yeah)

BUT 'if' they do have to pay tax going forward,

whats the betting they will put their prices up to cover the tax they now hopefully have to pay.

ALSO why do we pay more for these products over hear inthe UK already compaird to the US for examply,

I know they say exchange rate, but its also tax.

these companies should be pinned up against the wall and robbed right back (with interest in my opinion).

no more robbing everyday man for his small change, lets get these b'stards to pay what they should.

end of.

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FAIL

Re: Correct me if im wrong

Consider yourself corrected.

The tax that you pay on these products (VAT) is not part of the current discussion.

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Re: Correct me if im wrong

The standard rate of VAT in Luxembourg is only 15%, so if Microsoft is selling all its electronic services in the EU from there, they're saving themselves that extra 5% in the UK. (In Hungary where VAT is 27% they're saving even more!)

The main topic is corporation tax, but note that VAT actually raises more revenue.

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Anonymous Coward

News

This is news? it's been going for years and nobody seemed to care. Install CDs were always labelled with "Microsoft Ireland" or similar.

This sort of tax dodge must have been invented in the US and the reason is clear, their really high corporation tax levels, which will soon be twice the UK.

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Unhappy

Why has no one posted a "Microsoft Tax" joke yet....

Yes i can't think of one either but its all setup for a "Tax the Microsoft Tax" type joke.

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Joke

Re: Why has no one posted a "Microsoft Tax" joke yet....

A guy from Microsoft walks in to a UK tax office and says "I'm here to pay my tax bill".

The tax guy laughs and says "You know, I had a guy from Amazon come in asking to do that same thing! How funny, you guys never owe us anything, why now? Come on, lets forget about it and go and get ourselves a Starbucks Caramel chocolate amerilattecino double cream coffee with extra sprinkles? I'll buy. After all, it's not my money.".

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Go

If they won't pay tax, maybe they should pay for infrastructure

As they aren't paying any tax, but they are still putting vehicles on our roads, employing people educated in our education system and creating rubbish for our landfill sites, maybe there should be some kind of infrastructure charge that could be levied on companies larger than a certain size who pay tax below a certain threshold, just to cover the burden they create by receiving these subsidies from the taxpayer.

Obviously they would also have to have detailed accounting of this information so the charges could be levied accurately, which would probably prove quite costly and irksome, but that would be a choice they would make if they didn't want to pay regular taxes.

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Boffin

Re: If they won't pay tax, maybe they should pay for infrastructure

The things you mentioned are encompassed in the Business Rates which it's impossible to dodge unless you're a registered charity or illegally operating out of your shed.

Not even Starbucks can dodge that one.

I agree that the law needs a change. Companies have to act in obedience to the law whereas acting according to "morality" is often something their shareholders can actually sue for under "Best Interest" laws.

And they do. And the ones who sue are often pension funds, which also dodge as much tax as possible.

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Facepalm

Re: If they won't pay tax, maybe they should pay for infrastructure

but they are still putting vehicles on our roads, employing people educated in our education system and creating rubbish for our landfill sites,

Vehicles on roads - Vehicle Excise Duty, Excise Duty on Fuel, (Can't count VAT on fuel as that can be reclaimed). Let's not forget the vehicle manufacturers who benefit by selling these - a further economic benefit that it's convenient to ignore.

Employing People Educated in the system. : NI; PAYE; not to mention the fact that the employees are not a drain on state resources.

Rubbish for Landfill... Some of that responsibility lies with the end user and how they dispose of and/or recycle their rubbish. Some of it is covered by payment of business rates - I believe that they are not inconsequential.

In short - any discussion has to focus on PROFITS and whether or not profits should be taxed in the country of origin or else where.

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Re: If they won't pay tax, maybe they should pay for infrastructure

Only if the fuel buyer is regstered for vat can it be reclaimed, and the vat is charged on the fuel cost AND the fuel duty.

NI ?

Most of amazon workers are employed by agencies. Their pay is around the minimum wage (£6.19). They would qualify for working tax credit if their hours were not so high !

PAYE ?

See above.

Now, how many workers are economic migrants working for foreign registered employment agencies ?

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FAIL

Re: If they won't pay tax, maybe they should pay for infrastructure

"Employing People Educated in the system. : NI; PAYE; not to mention the fact that the employees are not a drain on state resources."

No, actually. National Insurance is protection from sickness, unemployment and old age.

Pay As You Earn is a general income tax that contributes to all public services. Unless you earn approximately £25,000 employees actually *are* a pull on State resources because you are not a net contributor until you reach that level.

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Meh

Re: If they won't pay tax, maybe they should pay for infrastructure

"No, actually. National Insurance is protection from sickness, unemployment and old age."

Cobblers. If they did proper accounting then the huge unfunded liabilities of the National Insurance Fund would have it shut down. At present it operates at a supposed surplus, but that's because so many benefits aren't actually funded from the NIF, but come out Government's main cash hemorrage pit, the Consolidated Fund. And the big clue to all this is the government borrow around £120 billion a year.

NI is a tax, same as any other. It all sloshes into the governments hands, they then waste and mis-spend it. Their lack of honesty and competence is the main reason that we still pretend that NI isn't tax, and that the NIF is somehow different to the Consolidated Fund.

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This is hardly news now, is it?

Basically, any global corporation with offices in Ireland, Lichtenstein, Bermuda etc are tax-dodgers.

I reckon there should be a Border Tax rate mechanism, that taxes any money crossing any border.

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Megaphone

A nest of vipers in our midst ... poisoning all with apparent impunity and immunity from prosecution

And while we are on the subject, let's be having a clear explanation for this elephant in the room

Or do one have to invite Anonymous to do what they do best and challenge them to do their worst and crash the system good and proper if the Establishment and governments are in corrupt cahoots with each other and against the global masses?

I trust in Global Operating Devices that is not too alien a message for y'all to understand. It couldn't be much plainer, methinks.

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Anonymous Coward

Re: A nest of vipers in our midst ... poisoning all with apparent impunity...

Being Northern Irish that was a mildly interesting read, but it's not just the politicians its the bigotry, and tribal politics that exist within people themselves e.g. look at the current situation over a flag, talk about not shitting where you eat. Even if we had real politicians with real abilities, what would it change? As long as political parties identify as Nationalist or Unionist the story will remain the same. Civil Servants run this country.

Oh and also, http://www.ninis2.nisra.gov.uk/public/pivotgrid.aspx?dataSetVars=ds-2303-lh-37-yn-2011-

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Devil

Re: A nest of vipers in our midst ... poisoning all with apparent impunity and immunity

Completely AGreed, Oh Martian One. Anonymous should also direct it's "talents" towards the Koch Brothers, Mitt Romney, Karl Rove, Donald Trump, Bill O'Reilly, Sean Hannity, Rush "Limberger" and many other GreedECapitalists and "Foundations" (tax dodges) that have failed to pay their FairShare. Publicize their FinancialFauxPah's and drop a dime to the Feds with proof of their Tax Evasion Strategies.

It is plainly obvious that the FatCats and the ElectedRats are in cahoots. They don't even exhibit any shame for their (mis) deeds. Unfortunately, this has been the case since the phrase "Military/Industrial Complex" was coined and nothing short of Revolution will change it.

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Go

Re: A nest of vipers in our midst ... poisoning all with apparent impunity and immunity

Well, actually, Anonymous has, according to their own admission, already dealt w/ Karl "Turdblossom" Rove.

Can't wait for the shoe to drop on the next one on your list.

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Thumb Down

"list of shame"

What kind of shame is that, then?

The same one invented by Good Honorable Citizens and People In Power And Need Of Money on which ..err.. "money lenders" were once put?

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