very good stu!
regarding the tax avoidance thing

2) CFC rules and anti-avoidance

The UK, like most countries, has controlled foreign company rules, or CFC rules for short. These are anti-avoidance rules that are designed to stop companies setting up shop in tax havens when their real activities are elsewhere. The rules are horrendous in detail but in principle, if you have a company in a low tax jurisdiction it must be a genuine business operating there rather than a nameplate for a UK business. You couldn’t, for example, set up a business in the Cayman Islands that runs shops in the UK, or provides services to your UK business in such a way that the profit comes out in the Cayman islands. Two main ways this is stopped. First, if you had a UK parent it would get nobbed with a CFC charge (i.e. the Cayman Islands company profits would be deemed to arise in the UK parent and taxed here – this is a bad thing as you don’t get a lot of the reliefs and allowances that a UK company would get). Second, if you had no UK companies, you would have a Permanent Establishment (or branch) in the UK and it would be taxed as if it was a UK company. Either way, you can’t generally route profits earned in the UK through a tax haven and dodge UK tax. Obviously the system ain’t perfect, but in general it works reasonably well.

how is this enforced as i havce friends in the city, IT contractors, who formed tehir own little company based in croatia to avoid paying tax here

all thats needed is for someone to pwn monbiot on tv like the antglobal warming hack in the telegraph was

Glad to be of help 🙂

Companies generally prefer to set up subsidiaries overseas, as others have said this is a separate company owned by the parent and incorporated in the country it operates in. This is often simpler and cleaner than setting up a branch. The assets of the parent at risk will basically just be its investment in the subsidiary and the subsidiary has its own legal identity, shares and assets. A sub is easier to sell off or wind up as well if things go wrong.

A branch is the operations in a country of a non-resident company – there is OECD guidance on what constitutes a branch (technically referred to as a “permanent establishment”) – can be as little as a desk/ office space, can be as big as you want it to. I think Amazon’s operations in the UK, which is obviously a fairly big operation, are a branch of a Luxembourg company for example.

A branch doesn’t have its own legal identity so in theory the whole company is at risk if something goes wrong in the branch; on the other hand it is easy to set up a branch and there can be advantages.

Financial services companies tend to use branches – as someone said it can reduce the amount of capital they have to hold (capital is basically shareholder’s money – banks and insurers have to hold a certain amount to cover themselves in bad times; what happened to banks in 2008 was in part because they didn’t have enough capital to cover an exteme set of circumstances but that is a separate discussion). As a rule, for a given set of activities a lot of small companies will have to hold more capital than one large one. Various reasons – big company will have more diverse operations which reduces risk that one bad set of circumstances will take the company down, so needs less capital than the sum of the small companies. Also, a group of companies with dealings with each other have to hold funds to cover the risk someone else they deal with defaults/ goes bust and they have to pick up the tab themselves (even if all owned by the same parent). If you only have one company you don’t have that risk, so there is no default risk.

The other reason financial services companies go for branches is regulatory. In the EU you can have a home state regulator as a supervisor (so UK banks and insurers are regulated by the FSA in the UK). If they have branches the whole operation across the EU can be supervised by the FSA with limited input from local regulators in other EU countries they operate in. If you have subs, you need to have much more involvement from local regulators in respect of your subs. Dealing with one regulator gives consistency, you are only subject to politics in one country and is cheaper and easier than dealing with lots of regulators.

The other big users of branch structures are oil companies – this can be in part for tax reasons. Oil exploration is horrendously expensive and you incur huge costs up-front in the hope of making a huge amount of money down the line. If you are a UK headquartered oil company with a branch structure, at present the expenses of exploration in Kazakhstan can be offset against production profits from UK or Bolivia or wherever for UK tax purposes. If you had subs, you’d have a loss trapped in Kazakhstan until you start making money there, no further tax on Bolivia (remember the dividend will be exempt fro UK tax) and still be profitable in the UK. Oil companies are lobbying for some continuation of this set-up even if branch profits are exempt, but given the inconsistency this introdcues I am not sure how successful they will be; might be some compromise that expenses that can’t be used otherwise can be offset in the UK or something like that.

kimbers – That’s not really my area; setting up offshore companies as you describe can work for a while but sounds like the sort of thing that relies on flaws or gaps in the tax legislation; these sort of arrangements will at some point be identified by HMRC and shut down if they are costing the UK a lot of lost tax (either because a few people are saving a lot of money, or a lot of people are saving a bit of money). It could also be as much about defer the payment of tax rather than saving much tax overall.

that’s some serious shizzle.
I love learning that stuff.

Are you based in London Stu?

So in short the Tories are nailing those least able to protect themselves whilst making life easier for their mates, and pretending to stick it to the bankers…or have I missed something?

so wait a minute paye tax aside – which we all know comes out of the employees salary, after announcing 11.6bn in profits barclays paid

£113m in tax

no small amount but isnt corporation tax supposed to be 25% or so

that is some serious avoidance shizzle
http://www.bbc.co.uk/news/business-12511912

lets be honest here, does anyone really think the tories give a toot about the ordinary millions on the bottom end, y’know, all us doing crap jobs, scraping by,week by week, paying our bills n taxes so that we can all just get to the next payday. trying to live a life? nope. they don’t. They are posh boy millionaires all about one upmanship and power in their stupid little ranks and all sorts of crap unrelated to true society, at least the normal, everyday society I live in.

kimbers – Member
so wait a minute paye tax aside – which we all know comes out of the employees salary, after announcing 11.6 4.85bn in worldwide profits barclays paid

£113m in UK corporation tax

no small amount but isnt UK corporation tax supposed to be 25% or so

Did you actually bother to read the article?

Did you actually bother to read the article?

But isn’t selective editing and sensationalising the way forward? Next, I suppose, you’ll be wanting me to understand things before posting my opinion! 🙄

All tories, and I mean all, are evil self serving not very nice people.

* slaps self *

Dave Cameron grinds up babies skulls and uses them for snuff.

FACT.

yeah my bad 11.6bn were 2010 profits

so assuming uk corporation tax of 28% they made 400m in the uk

yet according to this…

In the UK, retail banking profits were up 39% to £989m.
http://www.guardian.co.uk/business/2011/feb/15/barclays-profits-looking-behind-the-numbers

now im sure that they are legitimately finding a legal way to dodge that
but going back to the OP why is the government reducing their tax take from banks when money is so tight

stu n’s explanation doesnt in any way justify reducing taxes just explaining (as far as i can tell) how companies reduce their risks, presumably to the detrement to investors/economies/customers elsewhere though?

Any link between Barclays Group profits and the amount of tax paid to the UK government is inappropriate – there is no direct correlation between the two.”

said the person who designed the group so that they could say this.
The MP interviewed said much of this trading happens in the UK but uses “companies” based elsewhere to minimise tax
Obvioulsy this is not illegal but it is not hard to see why people paying for the banks will be annoyed to see them not paying thier share whilst taking big bonuses to.
Dave reducing the tax burden – currently they pay the differenc between rates here is hardly likely to help this situation. It does seem like bad old tory politics of looking after the rich rather than the majority of the citizens

infact

Barclays Bank has been forced to admit it paid just £113m in UK corporation tax in 2009 – a year when it rang up a record £11.6bn of profits.

obviously made up leftie bank bashing

i await your apology don simon? 😮

and some more

i await your apology don simon?

What for? The comment I made towards druidh is still appropriate.

Would be more interested in what Barclays paid in 2010.

2008 was a torrid year for banks, any tax losses they have from 2008 (which ought to be pretty huge) can be carried forward and offset against future profits. If they used a heap of 2008 losses in 2009 then that would explain the apparently low rate of cash tax; if they have the same thing in 2010 that is probably more interesting.

Reports are of an effective tax rate of 23-25% – I’m too tired and too pissed to explain deferred tax, but Google it and that might explain why cash tax out the door is so low in 2009, but overall tax rate isn’t that far off the 28% headline rate.

Oh, and think about why your own tax rate is less than 22% of income if you’re a basic rate payer, or 40% if you’re a top rate taxpayer. For individuals there are perfectly legitimate reliefs like personal allowance and tax relief for pension contributions.

Companies are in the same boat, with near-automatic reliefs that are open to them without any planning/ avoidance, so almost always have an effective rate less than the headline rate.

The way I see it the previous govt has inflicted the masses with such an addiction to “good” living that most simply find it difficult to stand on their feet again. A bit like the process of painful detox.

newsnight looking at this legislation at the mo

newsnight looking at this legislation at the mo

Just watching it on iplayer.

Interesting to note that this policy was drawn up by Labour prior to the condems coming to power (around the 30-32 minute mark if you’re interested).

It also appears to be all crap. It’s just bringing us into line with europe and you can get the same tax benefit using different accounting measures. It’s largely just a simplification exercise.

So, the upshot of all this is that, er, no – the “Tories” actually aren’t trying to shaft us a little bit more, at all?

So, the upshot of all this is that, er, no – the “Tories” actually aren’t trying to shaft us a little bit more, at all?

Pretty much. That’s not to say we won’t get shafted but it was all a Labour idea.

i liked the point where the american woman said basically the international corporations hold all governments to ransom over this so we have no choice
ie its the corporations shafting us