The voters hate Google
But I wonder how many of them use it (for free)?
As the tech news outlet of record has told us, UK chancellor George Osborne is preparing to bring in the “Google Tax”. Properly known as the Diverted Profits Tax, it is supposed to be a way of scraping tax revenue off those profits that the tech giants are diverting out of what should be righteously paid to HM Treasury and …
Is it free? I'm paying taxes so they can have a nice police service guarding their buildings, and there is a nice infrastructure with clean electric supplies etc.
After all in the same way they don't have to pay taxes because that's the way the law is, they don't charge me a connection fee why should I volunteer any to them?
Anyway I don't hate Google, I dislike the bad tax laws we have though.
google are still paying HUGE rates on offices, VAT on purchases, National Insurance contributions on employees as far as infrastructure goes ur taxes aren't paying for that G profits are. They are not getting a free lunch for the business they actually carry out in the UK.
we live in a global economy - if the UK is backwards and insular less attractive to forward thinking profit making organisations and only more attractive to benefit seeking immigrants then that is the fundamental problem.
Osborne is either really thick thinking that this is actually viable, or the worst type of self deluded conman thinking this will give him the 'attention of the people'. I do not know what is worse.
>> HUGE rates on offices, VAT on purchases, National Insurance contributions on employees as far as infrastructure goes ur taxes aren't paying for that G profits are. <<
Rates will be for local council, NI contributions are the same as every employer has to pay (can't really champion them on that front - not like they don't have employees in every country they do business), VAT doesn't work that way (they reclaim every pound, only the end consumer suffers VAT). Understanding how these things work makes sweeping statements like 'as far as infrastructure goes ur taxes aren't paying for that G profits are' easier to make correctly.
To clarify, the subject here is the profit earned and taxable within a given jurisdiction. The profit where they use "creative techniques" to export and avoid paying the usual rate of income tax.
Solution 1) When companies export profits, they typically pretend to "import" something to balance the books. Often they "import" rights to use a trademark, thus the profits are bundle up as a "royalty payment" and sent off to the corporate mothership untaxed (and a deductible expense no less). So, duh, tax the imports. Slap a 20% import duty on imports of trademark rights, or whatever else they pretend to import. This could be implemented in an afternoon.
Solution 2) Slap a tax on a fixed target, and then allow deductions for income tax actually paid. Find something, anything, that can't be moved. Tax it. But if the corporation has paid any income tax, then allow that to quickly 'deduct to zero' the new tax. If they forgot to pay income tax, then they can't escape the alternate tax.
>tax the imports.
That might catch "pure ip" plays like Google Search, but it won't catch anyone with physical goods for sale (such as Apple), since they simply jack up the buy-price paid by the in-country sales company. The only reason those companies don't run at a loss and pick up a rebate, is that it would attract too much hate to be worthwhile.
I have no idea who this guy is, but making the tax 5% higher seems like a plan to make people think you care, while intentionally creating a scape goat so it can't happen when the time comes to answer for it.
I'm American, so blame it on my pessimism, but this looks VERY familiar in politics (like very very very...?...very)
What about spurious and inflated licensing fees being charged purposely to ensure the UK entity never makes a profit? Are they the same rate worldwide - and if not why not?
What about UK sales people working for a UK company and making the sale but handing off the agreement to be signed to an Irish company? For all intents and purposes the sales are being made in this country by a UK corporation but then completed by a third entity purely for tax avoidance.
At the moment both these are legitimate tax avoidance - not sure they should be though.
"What about spurious and inflated licensing fees being charged purposely to ensure the UK entity never makes a profit?"
Wioth respect to hte tech companies that's not what actually happens. Well, it does in Ireland but that's an issue for their tax system, not ours. They're all selling into the UK from other EU countries. As above, under EU single market laws, that's just not even tax avoidances.
" Are they the same rate worldwide - and if not why not?"
Ah, if they're not then they would be in trouble, yes, transfer pricing rules would get them. And people are looking at this. Starbucks barnd royalties to that Dutch company for example. The EU found that Starbucks UK was being charged the same royalty rate as Starbucks franchises in other countries. So that's OK then.
"What about UK sales people working for a UK company and making the sale but handing off the agreement to be signed to an Irish company?"
That's a little more dodgy and and area where Google could, theoretically, come unstuck. Depends on how far down the line those UK based "sales engineers" go in "making" the sale. This is something that is being investigated/argued about right now and we'll just have to see how it turns out.
"For all intents and purposes the sales are being made in this country by a UK corporation but then completed by a third entity purely for tax avoidance."
As above, it's about how close that is to being true.
"At the moment both these are legitimate tax avoidance"
I tend to argue that tax avoidance is an attempt to reduce taxation. But once it passses therough the system there's actually no such thing as avoidance. Either you've obeyed the law as written, in which case it's tax compliance, or you haven't, so it's tax evasion.
" not sure they should be though."
And that is an entirely different matter. what "should" be is up to each of us to decide based on our ideas of fairness. That's not really something economics can help with.
Not sure why you got downvoted for this, Tim. Maybe the typos? Have an upvote from me.
Guess some people can't accept the reality of the situation. As things stand, no laws have been broken, therefore no action can be taken against the multinationals.
Perhaps the way around all this is to legislate that all sales in this country must be done by a company registered in this country. That way all sales to UK clients occur in the UK and are therefore taxable at UK corporation rates. However IANAL and expect that runs contrary to some trade treaty, tax agreement or whatever. And all EU countries would likely need to enact a similar law at the same time to be effective. I dunno. Just putting it out there.
Perhaps the way around all this is to legislate that all sales in this country must be done by a company registered in this country. That way all sales to UK clients occur in the UK and are therefore taxable at UK corporation rates. However IANAL and expect that runs contrary to some trade treaty, tax agreement or whatever. And all EU countries would likely need to enact a similar law at the same time to be effective. I dunno. Just putting it out there.
I'm afraid that defeats the whole object of the European Single Market. The idea is supposed to be that any EU company in any EU country can sell to any other EU country. That means that companies only need to comply with one set of laws and taxes. It's an awful lot of hassle to harmonise this stuff, and it's taken a very long time to build the single market.
Even if we vote to leave the EU in a few years, there's still a very good chance that we'll want to stay in the single market and EEA, so we'll still have to agree to harmonised taxation and regulation.
There are some changes to tax law that might help. For example, I believe Ireland have a system where you only pay corporation tax on sales within Ireland, and none on sales elsewhere, and that's attracted many companies to operate there. If companies had to pay all their corporation tax to Ireland, it might be less attractive to move there, just for a couple of percentage points off their tax. Luxembourg are being investigated for doing special sweetheart deals to attract companies to move their headquarters there. That's the negotiation that's going on at an EU level, and that may be able to fix some of the problems.
I'm not a tax lawyer, so I've no idea if this will work. But those negotiations are going on at an EU level, and I beleive that it's also something that's been quite seriously discussed at the G20 as well, so there may well be broader international action. But all that moves very, very, very slowly.
@I ain't Spartacus
"There are some changes to tax law that might help. For example, I believe Ireland have a system where you only pay corporation tax on sales within Ireland, and none on sales elsewhere, and that's attracted many companies to operate there. If companies had to pay all their corporation tax to Ireland, it might be less attractive to move there, just for a couple of percentage points off their tax. "
I don't think that's the case (although I think that the EU investigation of the Apple setup described something along those lines)
The Irish Times recently reported that Microsoft Ireland recorded pretax profit of $1.4 billion on turnover of $22.2 billion, and paid "paid an effective corporate tax rate of about 14.4 per cent, with a tax bill of around $204 million"
"The company’s cost of sales for the year was $2.8 billion (€2.5 billion) while “administrative expenses” were $17.9 billion (€16 billion). These are most likely royalty and other IP payments made to other Microsoft companies not tax resident in Ireland. There is no explanatory note about the expenses in the accounts"
"The company’s turnover came from Europe ($15.9 billion – €14.2 billion), the UK ($3 billion – €2.7 billion), the rest of the world excluding the US ($2.9 billion – €2.6 billion), and the Republic ($212 million – €189 million)."
" For example, I believe Ireland have a system where you only pay corporation tax on sales within Ireland, and none on sales elsewhere, and that's attracted many companies to operate there."
If that's the case then I'd have thought that a lot of the possible legal objections fade away. It's not that CT isn't being paid in the nation of residence, it's that CT isn't being paid anywhere. The whole thing starts to look like a complex structure whose purpose is not to pay tax and not for operational reasons. That, as I understand it, is something the tax authorities are entitled to take action against.
"If companies had to pay all their corporation tax to Ireland, it might be less attractive to move there, just for a couple of percentage points off their tax."
It's not just a couple of percentage points. Ireland's CT rate is much lower. When one regime starts undercutting tax to that extent any entity which can move there will do so; it's not possible for must of us to move to personal tax havens but for a multi-national corporation to move to a CT haven it's practically a no-brainer. How should other countries react? They could make similar cuts but the end result is that none of them win; businesses stay where they started and none of the countries collects much tax. If, however, other countries have the sense not to join a race to the bottom they lose the tax of the companies that head-quartered in the tax haven but are effectively conducting business in their territories. At the point where this becomes intolerable - politically if not financially - they need to find some other solution. If this looks like such a solution then it's unlikely to be a problem at an international level as there would be plenty of other countries looking to follow suit.
Excellent point - tax avoidance is a fantasy promulgated by HMRC and other branches of Government, and there is no meaningful way that it can exist in reality. Tax is what the law say tax is, end of. All the stuff about "avoidance" boils down to the HMRC saying the law makes them look foolish, having a tantrum about it, and attempting to extort tax the law says they aren't entitled to.
Not really. Avoiding tax means you are explicitly arranging your affairs in some more complicated way, for the primary purpose of reducing how much tax you pay - but that all of those mechanisms are legal. The issue is that some avoidance is just common sense and some is obviously devious.
What's that quote about "I can't define right and wrong but I know them when I see them"? Clearly, the legal system has to work to the letter of the law but that doesn't mean some cases aren't very obviously taking the mick - while others look fine to some and dodgy to others.
For instance an IT contractor working through a Ltd company (because agencies aren't happy if you work as a sole trader) can balance their income between company dividends and salary as they see fit. How can you possibly draw a line where that balance becomes 'wrong'?
We are all tax avoiders, or should be.
Do you get tax relief for children? Pension contributions? Repairs to the house you let while working elsewhere? Work related expenses? Sorry, I have not lived and worked in UK for many years so I do not know exactly what tax allowances can be claimed. But allowances are there, the tax payer is expected to claim them (that's why the laws and regulations were made) to avoid tax on the allowed amounts.
Evasion is another story and bears no relationship to tax avoidance using the official mechanisms to reduce one's tax. Evasion is a form of dishonesty.
It does seem as if large, American companies in particular are good at exploiting their status as non-EU firms to gain lots of tax avoidance advantages. That is a problem to be sorted at EU level with their opposite numbers. Note that the USA is changing or has changed its laws for the taxation of USA domiciled companies to prevent USA companies using British based acquisitions to avoid USA tax.
In fact, the hypocrisy of the British system is egregious: I read somewhere that London is one of the biggest tax havens for non-domiciled residents in the world, many of whom live full time, long term in Britain. But, being political party donors and good chaps, that is perfectly right and proper.
There's a distinction between tax planning and tax avoidance.
The former is lowering your tax by using the law as intended. Getting an ISA is an example of this.
The latter is using loopholes in the law to lower your tax. For example, buying and selling Cayman Islands companies that do nothing except own London property.
It's a case of spirit of the law vs letter of the law.
I avoid paying tax by buying Jaffa Cakes instead of biscuits. My employer colludes in my not paying tax by paying me less than the personal income tax allowance. I avoid tax by not buying cigarettes. There's probably loads of other tax I avoid. I avoid minerals extraction duty by not being a oil company.
I worked for a UK company in Hong Kong. We were a sales office and sold stuff all over asia, we merely forwarded the POs to the UK. The firm only paid corporation or profits tax in the UK. I paid income tax in HK.
Those who bleat that Google should pay UK tax are deluding themselves
If every country decides to tax overseas firms on the (percieved) profit made in their country no-one will be able to afford the accountants to figure it all out.
Cutting taxes for the rich in a time when the nation is skint is daft. If it brings in another 50 or 100 megaquids, that's fine by me. An extra tuppence ha'penny would be fine. Rather than just removing child benefit from the moderately well off, the stinking rich can help too, buy paying an extra 5%. We are, after all, 'in this together'. We are, aren't we?
Cutting taxes for the rich in a time when the nation is skint is daft. If it brings in another 50 or 100 megaquids, that's fine by me. An extra tuppence ha'penny would be fine.
How about if it brings in less money than not having the tax at all, do you still want it then?
If it cost more to run than it brought in perhaps it needed to be higher.
It's not that it "costs lots to run". When you change tax rates, you change peoples attitudes to earning money, and the tax generated by income taxes depends on what money people earn.
You can put the higher tax rate at whatever you like, but if you put it too high, there is no incentive for anyone earning above that level to bother to earn any more money, since they don't get much of it.
Similarly, there comes a point where the amount you are being taxed makes it advantageous to restructure your income to minimize your tax obligations. It should be self evident that the higher the tax rate is, the lower the level of personal income required to make it worthwhile to (legally) avoid tax.
Eventually, you can raise it to a point where anyone earning enough to pay top rate tax is a fool for staying in this country - in the 1974, the top tax rate on personal income from investments was 98%, and subsequently, a) its not worth investing in the UK, b) anyone affected who could leave the UK, left the UK.
Less people to tax, people (legally) working harder to keep hold of their money, people who are disincentivized to work harder and make more money - all of these things reduce the take from income tax.
The top rate didn't bring in any extra money because it didn't last long enough.
High earners bought their income forward to avoid the first year, and then deferred income to avoid the second year.
Or they did what my sister did, quit their job, become a consultant providing services for the company she used to work for (and a couple of others), pays herself basically nothing and takes the rest as dividends.
She wasn't a huge earner - less than £80k - but having £3k less a year, when a few changes and £250 spent with an accountant means you have £3k more, no brainer.
Well that's entirely legal and she is still paying tax. Company profits are taxed, and dividends which take your personal earnings into the higher-rate tax bracket then attract additional tax. It's probably more tax efficient BUT it's NOT allowed to simply quit your job and do the exact same thing through a Ltd company. Or rather, that is legal but then the dividend thing isn't - you can work through your company but lose the tax and NI advantages (IR35).
Labour only increased the top rate of tax weeks before the 2010 general election because they knew they would lose and the tories would have to reduce it ( but to more than it ever was under Labour ).
Taking around 60% of somebody's pay ( inc NI ) is immoral. If Labour didn't think so, they would have started doing it years before 2010.
Income tax maxes out at 60% if you have income just above £100k, as you lose £1 of your personal allowance for every £2 above £100k. So in the £100k-£120k band, every £1 of income suffers 40p of tax and causes another 50p to pay 40% tax, giving a total tax bill of 60p - 60% effective tax rate.
You can also get some effective tax rates well above 45% in the £50-60k band where the High Income Child Benefit Charge applies, though the ETR there varies depending on the benefit you're losing. It can go above 60% if you have a lot of children.
For someone on £120k, the effective tax rate including employee's NI is 62%. If you include employer's NI, then the effective tax rate is more like 67%. Paying an employee £100 of gross salary means £60 in income tax, £2 in primary NI, and £13.80 in secondary NI - so out of the £113.80 cost to the company, £75.80 goes to the Treasury.
Personally, I find the excessive "pay" and the widening and extraordinary income differences in modern Britain to be immoral and very damaging to the country (which is not a business, it is a society of which business is a part). Indeed, I have not got any references to hand; but a couple of serious and accepted studies were reported recently that demonstrated that the widening wealth gap is damaging the economy.
UK now has the proud boast that it has the most low paid workers in Europe, though not the lowest prices, so that large numbers of people in work can subsist only by state subsidies and charity. It seems someone got the digits in 1920 and 2019 (as we are nearly there) confused.
The government is free to determine taxation, even if completely arbitrarily. It only needs to draft the legislation right.
For example, Labour in 1997 applied a 'windfall tax' to formerly state utilities deemed by them to have been making excessive profits after privatization. This is nothing to do with the EU.
There is no reason why legislation drafted properly could not apply a tax to Google, or anyone else, based on profits made within the UK. This is entirely legal, assuming you draft a law properly, as the government did in 1997.
If we're going to talk about pledges made to please the public with no possibility of succeeding, then I think claiming you can leave the EU and then get a deal to access the single market but without all the freedom of movement parts is a bigger lie. Switzerland has single market access even though it is out of the EU... but... it also had to sign up to freedom of movement, and it's even in the Schengen zone. If the EU won't give you this deal while you're in and paying the fees, only an idiot would believe that if you leave and stop paying the fees, they'll suddenly cut you the deal they wouldn't give when you were a paying member. It's bonkers. Leave the EU, leave the single market. Be honest about it.
I am a bit curious why the Reg keeps publishing this UKIP nonsense. My swivel-eye-o-meter starts clicking almost every time I visit the Reg site these days.
I'm not sure your argument makes much sense. We can tax things that effect companies who are resident in the UK for tax purposes (Windfall taxes / bank taxes etc.). It's much harder to do that to companies that are resident in other tax jurisdictions. Particularly if they are using the rules of the Single Market to trade within the EU. I'm no tax lawyer and I haven't looked at this legislation, but Tim Worstall makes a decent argument as to why it may not comply, and will quite possibly end up being decided by the ECJ in several years time.
Having dismissed his argument, you then go onto some sort of attack, possibly on UKIP, possibly on Worstall, though you don't specify. And it's not relevant to the article.
It's possible that the UK, being the second biggest economy in Europe (although that may depend on how you measure it between us and France), has a lot more negotiating leverage than Switzerland. And can carve out a better deal. Particularly as we run a trade deficit with the rest of the EU (a surplus with the rest of the world) - and there would be lots of political pressure from big EU companies wanting to keep access to the UK market. Espeically as the only plans for Eurozone recovery seem to be based on exporting, rather than stimulating internal demand, and for that they need markets willing to import.
On the other hand, the irrationality of the way the negotiations are currently being handled with Greece suggests there's a second option, where the EU plays the rejected lover and decides collectively to punish the UK for the insult of leaving. Despite doing more damage to its own economy in the process than it does to ours. I believe if we do decide to leave, that the agreement has to be unanimously approved by all member states, the Commission and the European Parliament. There don't seem to be many genuine Federalist believers left in politics at the national level, but there are many at the EP.
It's interesting that Cameron has not even put it on his list of things to try to negotiate, any restrictions on free movement. He's decided it's just not possible, so there's no point asking, he's better to try to negotiate on things he can actually get. One of which is to try deal with the technical differences between benefits systems. Many EU countries have contributory systems, so poorer migrants have much smaller incentives to go to those places. Where as we have in-work benefits for which you don't need to have contributed beforehand. So that could be acting as an incentive for people to come here, and take low-paid jobs - and price down the wages of the lowest paid. There might be a deal there, as Germany has similar issues.
However I presume you were attacking UKIP rather than Cameron. Myself I'm no fan of UKIP, but I can understand why they've become a political force. If Cameron were to win the election, attempted to negotiate and got nothing, I'd be very tempted to vote to leave in a referendum. I don't buy the argument that our economoy couldn't thrive outside the EU - although the EU has some nice advantages. But there is a major democratic problem, and rather like Scotland, if people feel that the downsides of the political compromises required to stay in the union outweigh the upsides of the trade it promotes, then it's time to think about leaving. As democracy is really important. The Eurozone crisis proves that the voters of the EU do not feel that they are one people - whose taxes and laws should be shared - and that means if the EU pushes integration past a certain point, it will lose all legitimacy. UKIP argue that point has already been passed. On that, I think I agree with them.
Oh sod off.
I'm intelligent. I have yet to hear any cogent arguments from the pro-Euers that do not contain either insults or the the assumption that I am simply too stupid to realise how wonderful the EU is.
And you wonder why more and more of us are turning away from the idea of an EU.
Actually I doubt state aids would capture an exemption for small companies. There os already precedent for different treatment between large and small on both tax and reporting. Its a clear rule that applies to all.
Perversities may be more worrying. The big issue tends to be diverted revenue. There the issue is that the revenue is declared, just elsewhere, and claiming it back is country vs country issue not domestic taxation. Its in the rules as you say. The proposal is a diveretd profits not revenue which raises the spectre of HMRC spending all their time on companies that have declared revenue in the UK and becoming a negotiating threat for transfer pricing and related distributed cost bases in the single market. So basically as with most regulators they spend their time on the easy to regulate not the hard cases that take up the political debate.
The other interesting thing is that you are assessed on how much of 100% you have diverted - but there seems no way of defining what a 100% is other than the tax a company is already paying.
I do think that there is a germ of political reality in the idea of finding a way to stop multinationals hiding profits. The amount of tax not paid in the UK by Google, Amazon, Starbucks, and probably Microsoft is a real issue.
But I am not convinced that our politicians are up to actually doing something about it, and this particular initiative sounds like a populist gimmick rather than a workable idea.
The idea that any government prepared to sign up for TTIP expects to be able to get multinationals under their thumb is simply comic. But then, they are all clowns anyway, so what else would one expect!
"There's also a more minor point that can and should be made, which is that companies doing less than £250m in business are apparently going to be let off this"
While not a tax person, surely if this was a reason for an EU challenge the UK VAT rules would have been struck down years ago? They've got a threshold value for turnover and no-one is challenging them as state aid...
Whilst I agree that I see the DPT running contrary to EU Law, its worth noting that the whole process of escalating this to a European Court could take a very long time. The way the tax works, with self disclosure, then very shot time frames for payment or dispute resolution, the boon to the Revenue could be quite quickly established. Of course, that will be hardest to measure - the whole point of the DPT is to change behaviour and win voter points. Companies will quickly adjust their tax returns so they pay only 20% tax on the sums in dispute.
When the DPT is finally undone by the EU, those adjustments pushed through the CT returns won't be eligible to be reclaimed by the taxpayer. It is a huge gamble for companies subject to the tax to simply pay up at the higher rate and hope that they will get it back in the future. To that end, I think that the tax will prove a success in the short term.
The bigger question is how this sits with OECD BEPS work, whether the DPT will encourage mass unilateral action, create rampant double taxation and disregard all the progress the working parties have made thus far.
It's an Aunt Sally, and a very useful one for the government right now.
No laws have been broken (whether or not the laws serve the purpose they were intended for is a matter for another debate. For example, I bet a lot of people here are affected by IR35 which categorically DOES NOT do what it was meant to do) but Daily Mail readers are up in arms, and the Chancellor of the Exchequer has to be seen to be doing something, no matter how ineffectual it may prove to be.
It's interesting to look at the upvote/downvote ratios on this story. On most stories, a common-sense comment gets a big pile of upvotes an a stupid comment gets a load of downvotes. What we're dealing with here is basically a political issue so I'd expect people to vote along party political lines (tories in favour of the original article and lefties against). Hence a fairly even split of up and down votes.
We might not necessarily see it as party political, we each see our own view as common sense, but that's the nature of politics.
I think your conclusion is based on a too-simplistic view of how Amazon operates their retail business (the cloud is a wholly different pan of eels).
Whilst the customers order is taken on the web (just what country is that in? ), the order is delivered from a gigantic warehouse in the UK - it takes 5 minutes to drive past their warehouse outside Glasgow ON THE MOTORWAY. So the revenue is declared at the website operation, but most of the cost is incurred in Blighty. I daresay that sufficient revenue is assigned to the UK to cover operating costs, CAPEX depreciation etc., but not enough above that to incur corporation tax.
So the key here is how the revenue is assigned. If it were assigned to different centres in proportion to their (genuine!) costs, no taxman could complain; however it isn't.
Perhaps the real problem is that megacorp s.a./ltd/inc. can do this, but Bloggs the plumber (or indeed I.T. contractor or employee) isn't allowed to.
Amazon's situation is a little different. Those warehouses. Under the standard double taxation treaties warehouses (and logistics chains etc) are expressly excluded as giving rise to the creation of a permanent establishment and thus a corporation tax liability.
Amazon is still being cute, of course it is, but it really does have the express letter of the law on its side on this particular point.
"...the express letter of the law..."
I think that's the key point. It may satisfy the letter of the law but it doesn't pass the smell test.
Avoidance for me is when you start sailing close enough to the wind that you need to rely on the letter of the law. So:
Starbucks - I don't like the coffee but everything it's been accused of is basically straightforward business practice. One part of the group holds the rights and licences them to the other parts. They charge group members the same as to other companies and only reason they made the news is everyone knows the name.
Google - everything goes through Ireland? Really? So if I was to call and arrange an advertising campaign I'd speak to a guy in Dublin not London? If yes fair enough if no...well something's off.
Amazon - Legally warehouses don't form an establishment. I can see how that would work - you've overseas customers so you ship over a local stock of goods so fulfilment is quicker. You then restock in bulk from your home base. Whereas I reckon a lot of what Amazon sells comes from UK suppliers and I can't see how a crate of books from a UK printer magically goes to Luxembourg when put on a shelf. Lets face it, legal or not, it reeks.
So the revenue is declared at the website operation, but most of the cost is incurred in Blighty.
Do you honestly believe the majority of the cost of providing to you goods from Amazon is storing it in a warehouse and then delivering it to you? Nothing about purchasing the item in the first place?
Amazon actually have this sewn up, their sales are all from Luxembourg, which is where the risk occurs (they buy things; if they don't sell those things, they lose money). They set prices, they buy stock, they pay for fulfilment and they make the profit. Fulfilment sites don't make profits, they simply do their purpose at the most efficient manner possible.
Actually, Amazon as a global entity has made hardly any profit since its inception. They have significant surpluses, but these are all invested back into the business (building server farms, warehouses, etc). So even if they were wholly and solely a UK operation, there'd be relatively little liability for Corporation Tax.
Tesco controls about 25% of the supermarket trade in Ireland - there are hundreds of Tesco stores all over the place.
Tesco pays various Employer PRSI contributions, Rates, excise duties on the diesel used In it's local delivery trucks, etc, in Ireland but it pays no corporation tax in Ireland, because the profits that Tesco stores make in Ireland belong to Tesco in the UK, and are taxed in the UK.
Why should Amazon be treated any differently than Tesco?
Re: Why should Amazon be treated any differently than Tesco?
The major difference between Tesco and Amazon is that Tesco relies on brick's and mortar locations versus Amazon being able to easily move revenue/profits between locations.
The problem isn't so much moving the profits between countries, the problem is moving all profits to the country with the lowest tax rate in the EU - Luxembourg benefits while other economies suffer.
The Google tax will probably fail (either not raise any additional money or be challenged in court and fail) by which time the EU will probably have addressed this in some way (i.e. by setting a minimum tax rate across EU members and maybe a cross-border tax that favours physical companies over virtual ones).
There is also the question of whether consumers want the big companies taxed - the companies pay less tax and their goods become cheaper because of it. However, it damages local businesses (who struggle to compete on price and range) which in turn damages local communities (less jobs and less money in the local economy). Does the economy benefit from this in the medium to long term?
"The major difference between Tesco and Amazon is that Tesco relies on brick's and mortar locations versus Amazon being able to easily move revenue/profits between locations."
Maybe you're having difficulty grasping all this complicated stuff - Tesco has hundreds of Brick and Mortar locations in Ireland, but it doesn't pay any Corporation Tax in Ireland on profits made in those Irish stores, because Tesco is headquartered in the UK, and it pays Corporation Tax in the UK, not in Ireland.
It's no different to Amazon in this respect.
Really? I'd have thought that a supermarket would constitute a permanent establishment as it's "a fixed place of business through which the business of an enterprise is wholly or partly carried on". (OECD model convention article 5 para 1)
Amazon's get out is that exempt are "a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise; b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;" (article 5 para4).
A perfectly decent exemption which made sense before the business of the enterprise took place in a data centre (which isn't a permanent establishment either).
Always demands for more not less and always an attack against someone. The greed involved to try and steal from these companies because they are 'big bad companies' while demanding they give more money, employment opportunities and services to us is staggering. How about reducing the tax on these companies to encourage them to bring the money here. To invest here. To make our lives better here.
Yes, excellent point, and it also speaks to the VAT exemption point made above.
The EU is saying that you can have a zero rate of duty for small producers. That's not a problem (you can even justify it, how much does it cost in taxmen to collect a few hundred/thousand pounds a year each in a new and different tax from 500 farms?). But what you're not allowed to do is say "cider pays duty but we'll ignore the small fry".
Much the same as the VAT exemption: it's in law that turnover amount so that's fine. With te DPT they're not putting the exemption down on paper, just saying they'll not bother.
Just get the financial report from the New york stock exchange listing and see where they are making a profit.
Then buy shares, and demand to know why Google UK has never ever made a profit, indeed why is Google inc. subsiding an operation in a country that it makes no money from.
It would make this whole area of discussion a lot easier (and more pleasant), if people could lay off the childish point-scoring crap. MPs don't pay corporation tax, nor are most of them likely to operate across international boundaries. So they'd personally be much more likely to take advantage of loopholes in personal taxation law. Sure there are some MPs with outside business interests, who will be involved in this. But the big problems here tend to be large global corporations, who by definition operate very complicated structures across many international boundaries. And even if they were trying to pay as much tax as possible, would still have very complicated tax affairs.
Having some juvenile dig at MPs does not help matters.
In this particular case, one of the major problems is that there is almost no way a single parliament and/or government can address this issue. Even if we weren't in the EU and the Single Market, we still couldn't please ourselves on this law, as it's all subject to international tax treaties. We're plugged into a global economy. Mostly that's a good thing, and makes us all better off. But it has some downsides. There now looks to be an international consensus that corporation tax needs fixing, but even if that goes full speed ahead, and every government in the world shared the same political beliefs, it would still take years to get all the agreements hammered out and implemented.
Plus we're in the EU, which severely limits our freedom of action. As the article discusses.
ARE the reason the tax code is full of holes that MPs will not shut down.
Because the employers of the MPs (as outside contractors/advisors/paid lackeys) will instantly stop funding any MP who comes up with the idea of reforming the tax code so that big companies(and little ones) can not massage their cash flows to make it appear to the inland revenue that they are making no profits.
Boris the cockroach,
You don't appear to understand the British political system. Almost any bill that affects the tax code is going to be written by the Treasury. Probably with mininmal influence from back-benchers. You might get some input from the treasury select committee. But the efficient way to lobby on the tax code would be to offer future employment to HMRC and Treasury officials. Or I guess the Chancellor himself (if you're feeling ambitious).
On the other hand, Gordon Brown has been the cause of a lot of the recent extra complication in our tax rules. And the introduction of various incentives (which often become loopholes). And for all his faults, I think he did it because he wasn't very good at his job as Chancellor, and becasue he has a tenedency to focus on detail. This made him a great electoral tactician, but not a very good Cahncellor or Prime Minister. I wouldn't put it down to corruption.
Quite frankly I'm sick and tired of this lazy cynicism about politics, as some sort of replacement for critical thought. The answer is more likely to be cock-up than conspiracy on almost any topic. It's basically a bollocks argument.
British politics is by any global standards very clean. Our biggest recent scandal has been about a few million quid paid out on excessive expenses - which was basically done as a dodgy backroom deal in order to avoid the bad publicity of giving MPs pay rises. But our politics compares favourably in these terms to US, French, German, Japanese, or anyone else in the G20 (with the possible exception of Canada, which I don't know anything about). I've not even mentioned Italy, Spain or Greece, let alone Russia/China etc. I bet the Scandinavians are better than us, given they place higher than us on Transparency International's list. You'll never get totally clean politics, because power attracts (and affects) money - but a fair analysis of the limits of our political system is much needed from the electorate.
Oh, and the subject of this article was about avoiding tax due to the rules of the Single Market. Which is a problem at a European level, that MPs have even less influence on.
>, paying corporation tax in your home country is not a loophole.
It is when your "home country" is a brass plaque on a lawyers office in the Caribbean.
Perhaps I should rent a server somewhere offshore loop my remote desktop through there and stop paying tax because I am clearly "working" from Sark or Lichenstein.
It is when your "home country" is a brass plaque on a lawyers office in the Caribbean.
That might be so. But when you operate in the European Single Market, you only have to set up your legal entity in one of those states, to then be able to operate in all the others. That's how the system was designed, and that does convey economic benefits. There are also downsides though, and this tax issue is one of them. On the other hand, it makes it harder to tell what's being done for the purposes of tax avoidance, and what is being done becuase it's the most efficient way to run an organisation.
There will never be a perfect solution to this problem. Something will always be left to individual interpretation of what's "right" or "moral", or what the law means. Since we try to make everyone equal before the law, that means it'll go to court, and be decided on the letter of the law. And that may create political pressure to change that law. But whatever we do, someone will either be disadvantaged by an unintended consequence, or find an unintended way to profit from one of the exceptions created to avoid disadvantaging someone else. Such is politics.
I have no idea what the tax position of IKEA is, I know almost nothing about the company.
However I think it very unlikely that it's due to pay corporation tax on €40 billion.
€40bn is its sales. Corporation tax is paid on profits. That's likely to be a much smaller number - and therefore look far less impressive. There is a rather enormous difference between the two. It's like the mythical £6 billion Vodafone tax bill that they supposedly avoided paying. When that number appears to have been plucked out of thin air, and much of the story seems to have related to the profits of the German company they'd bought. Where whatever tax was due, was probably Germany's.
The nub of the problem seems to be that the second transactions happen "outside the jurisdiction", it becomes very difficult to administer any system to monitor the transaction ...
I'm idly wondering if there is a mechanism to lever the currency - sterling - such that transactions in sterling can be taxed. Wherever they happen in the world.
Not really sure *how*, but it's worth a sideline that until recently, OPEC insisted all oil was bought/sold in US dollars, which acted as a boost for the Federal Reserve.
(Side-sideline, the first country to unilaterally stop using USD was Iraq. Followed by Syria, North Korea, and Iran. Curious how these countries were very much Dubya's "axis of evil" .....)
A foreign company can sell 10 choccy bars to a customer in the UK for £10 because he pays no tax here, a UK company has to sell the same choccy bars for £12 because it has to give the taxman £2.
If you taxed the customer the £2 then both the foreign company and the UK company would pay no tax.
The Government would get £2 for every £10 of choccy bars sold irrespective of the location of the seller.
The reality is that the tax avoiders are the UK customers.
A Land Value Tax is the answer, if you exclusively occupy a piece of land in the UK you stop any other UK citizen from utilising that land, for that benefit you should pay compensation to everybody else.
"A foreign company can sell 10 choccy bars to a customer in the UK for £10 because he pays no tax here, a UK company has to sell the same choccy bars for £12 because it has to give the taxman £2."
But ForeignCo does still have to pay tax to ForeignHMRC. That might be £2. Or maybe £3 or £5 or £1.50 or 2½p. Whatever rate ForeignGov decides is appropriate (and I think £0.00 as you claim is very unlikely).
Nope. You hit the person up on each transaction (essentially the seller collects the tax on behalf of the government). But you'll find that at 20% tax evasion becomes an insurmountable problem. I think the max rate at which people pay sales taxes is 12%.
For four paragraphs you made a logical argument. Then you went smoked something not even legal in Holland.
Land Value Taxes have their place in government taxing systems. But they have the same problem that all taxes except the VAT and to a lesser extent progressive income taxes have: modern governments spend entirely too much money to raise sufficient revenues that was.
You can argue for a sales tax on the basis of economic efficiency and taxing the correct person. You can argue for a flat income tax on the basis of fairly distributing the risk of government abusing its citizens. But ultimately the problem boils down to government spending too damn much money, regardless of which side of the pond you live on.
"Quite apart from anything else, we're governed, within the EU, by EU tax law"
Whist this is technically true states can in fact create their own taxes and set their own rates.
Actually as it happens if you start from the position of it's workable and it'll be enforced (and I realise that's a huge ask with the HMRC) it actually makes a fair bit of sense.
It's workable as long as all members have similar tax rates - as soon as some members have a significantly lower corporation tax AND the ability to easily alter where an item is purchased (i.e. websites) this changes.
Now that the EU playing field has changed, we just need the politicians responsible to come up with a solution. There are many possible solutions (i.e. I believe there has been a significant shift to a consumer based economy so increasing the VAT on "non-essential" items and lowering income/corporation taxes would remove some of the advantages of the web giants over local business and tax consumers in a way that was difficult to avoid).
I suspect that cash will be raised in the short term, though it's possible that much of it will end up being refunded. As the Treasury uses cash accounting, that will look good for now.
There are a number of possible challenges to the DPT but, regardless of their technical merits, as Benedict-Hope has pointed out this sort of challenge takes time - and the proposals would require the tax to be paid up front. Different firms take different attitudes to this sort of thing, but I'd be surprised if they withhold cash that is demanded under what is at that point statute law.
As for the situations it addresses not being corporation tax avoidance: that is fairly simply dealt with, as the DPT isn't looking at avoidance of corporation tax . It's a separate tax from corporation tax (though I'm fairly sure the corporation tax bods at the large firms will be looking at it), so there's no particular requirement to import CT concepts like the correct attribution of profits to a permanent establishment into it. It's looking at situations that might reasonably be considered to be corporation tax avoidance if you were to apply different rules (like assuming that certain costs are inflated and discounting them by 30%: this is not something you can do for CT purposes, you have to work out an arm's-length position).
I'm not familiar enough with EU law on state aid to make much informed comment on that front, but it does strike me that there are a lot of areas where SMEs have been treated more favourably than large companies without contravening the rules - transfer pricing exemptions, R&D, Senior Accounting Officer, and so on. So I'm unsure as to how strong that sort of argument is.
Neither am I all that familiar with the details of the EU treaty, but I'm also not sure that the principle that any EU company can sell across the EU is contravened either. The UK can levy what taxes it likes on companies, so long as it does so even-handedly - and DPT applies to UK companies as well as non-UK ones. You can't levy new turnover taxes, but I'm not aware of any other restrictions that would kill this off.
I don't like this tax - it's an extra layer to paper over perceived holes in the underlying tax law, and I'd rather see those perceived holes dealt with (partly by fixing holes, partly by fixing perceptions). But I do think it could potentially raise cash.
The world needs a flat 15% income tax on all companies or persons that are based in that country.
The tax laws need to be changed everywhere to remove 100% of the loopholes. In fact, throw them all out and start with all new legislation guaranteed to be understood by even the most ignorant among us. It only needs to be one sentence long.
As it stands now, almost all corporations pay an insignificant amount of taxes because of loopholes and accountants. Once corporations pay their fair share, the individual tax rate could be decreased.
The upshot being that a huge increase in disposable income would be able to spur economic growth.
If you put a 15% income tax on companies most companies would go broke as they simply don't make enough profit. Companies are taxed based on profits not income because some businesses run with very low margins. People are taxed on income as the only 'profits' they could make would be savings, and we have enough trouble getting people to save without taxing them at a high percentage.
The problem with this is "income" and "based in"
If I work in an office in the UK and get paid a salary then it's easy to say where I am resident and what I get paid.
If I am a billionaire that makes most of their money from a complex international web of investment trusts, hedge funds, derivatives etc and I visit my London home only at weekends in the summer - exactly what 15% of what were you expecting to get ?
One point which tends to get overlooked in these discussions is just what is the overall effect of a Corporation Tax (at least as it works in the UK).
If megacorp makes a profit of (say) £/$/€1M, then it pays tax on those profits (not it's turnover, as some politicians would seek to imply. We use VAT to tax turnover.) at whatever rate it's home country charges.
If Corporation Tax didn't exist, then the same profits would still be taxed, only as dividend income in the hands of shareholders
So the net effect of a Corporation Tax is to bring more tax into the coffers of the "home" country, at the expense of shareholders - both domestic & foreign - who have less profits distributed to them. Nothing to do with "fairness", just a pre-emptive tax grab by the local government.
VAT isn't a tax on turnover. It's a tax on consumption.
The reason for this is that any organisation that's VAT registered gets to claim back any VAT it pays. So any company that sells business-to-business is almost totally unaffected by VAT. You charge it, pay it on the stuff you buy from other businesses, then hand over the difference to HMRC. But becasue the companies you sell to are businesses, they claim back the VAT you charged them as well.
It's only when that final invoice in the chain hits a consumer, or a company too small to be VAT registered, that someone finally has to swallow the VAT element.
Until then, all VAT has done is create lots of paperwork and sometimes cashflow problems. Also it means you're reporting quarterly sales and costs to HMRC, which really helps with working out the state of the economy.
As you say though, corporation tax is a tax on profits. Not turnover. Hence all the arguments about Amazon seem ridiculous, given they don't make much profit. The problem with Amazon is the distortion they create with the Single Market VAT system, helping them to out-compete local companies on price.
It will be harder for the UK government to collect the 25% tax than it thinks since Google is the top search engine, smart phone OS, browser, email and video. Similarly Google is at the top of its game in avoiding tax. It will take a lot of countries working together to collect tax of some of these big corporations like Amazon and Google as they are all masters at moving money around to avoid tax.
Amazon don't make profits. They re-invest their profits into expanding the business, and growing into new areas like Cloud Computing and phones/tablets. Thus it doesn't matter what jurisdiction they're in, they still wouldn't be paying corporation tax.
Google, MS and Apple are a different matter.
'... various mouth-breathers glue themselves to shop windows and thus frighten the horses.'
Okay, can someone explain to me why a mouth-breather glued to a shop window might frighten the horses? Since the average horse doesn't spend that much time around shop windows, the horse might assume mouth-breathers to be a perfectly normal attachment.
Or assuming that we are not to take the statement literally, this must be a contender for mixed metaphor of the year.
...we hate the lying, two-faced, MP scum that infect Westminster.
Grow some balls and change the law to may such tax evasion near-impossible. Tax companies' gross taking at 5% or something. Make CEOs personally liable for any tax evasion etc. Actually feckin' DO SOMETHING, rather than strut out cheap sound bites for the masses.
Oh, as stop feckin' funding public works with loans from tax evaders. i.e. kill PFI dead.
... is nonstandard pronomial inflection.
whom I happen to know is an experienced bod in this area of law
Preferred usage would be "who I happen ...". Here we have a dependent clause: "who ... is an experienced bod in this area of law". "who" is the subject of that clause, thus in the nominative case, and thus should not be "whom", which preferred usage reserves for the objective case. The phrase "I happen to know" is a second dependent clause (within the first one) acting as an adjective modifying "who".
Now, had you simply written "whom I happen to know", without the "is an ..." part, then "whom" would have been correct (i.e. preferred). In that case the only standard grammatical parse for the clause would make "whom" the object of "to know", and "I" the subject of the clause.
So to summarize:
- Enable greater European integration with standardized tax laws and benefits systems across the board, including minimum income levels - ie the 'If we're going to be in Europe lets get fully in there' line.
- Completely divorce from Europe and make our own way in the world, allowing changes to be made irrespective of Europe. The 'f*%$ this lets get out and we'll take our beer with us' line
Either way how about stop standing on the sidelines and dribbling down your trousers. Make a decision and go with it, and expect the decision to show results 10 - 15 years down the line not 4 - 5 years.
Personally I'm with the 'Make a decision and stick to it' group.
Let downvotes begin
not really, one of the problems with the current internet-y world is where does the sale take place?
If I am in the UK selling some digital problem, I have my website, hosted by a US company, someone from Japan buys my product. Where did the sale take place?
Also I believe Google were getting criticised because their UK offices forwarded all sales calls to the Ireland offices, so they paid Irish (Eire-ish?) taxes
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