Grum its only 3 pages long – the UK law may not comply yet but it will after discussions
The cadbury schweeps ruling trumps everything [ ie what they are doing is legal as they can shift it[money] to another subsidary to minimise tax even though all the sales were in the UK – two other bits of legislation get mentioned

The article is a discussion of revisions to the CFC regime which historically has been one of the main planks of anti avoidance legislation that is applied to UK controlled groups – it would therefore not apply to Apple, Starbucks etc. The Cadburys decision drove a coach and horses through this anti-avoidance legislation so the UK government has produced new rules which are designed to achieve their objective without breaching the EU concept of freedom of establishment. The article comments on their likely efficacy.

I just love Cameron’s “I’ve asked HMRC to look into this” – why ? YOU make the rules, HMRC are just trying to do their best wading through them.

Generally HMRC Policy Division is responsible with coming up with proposals to change technical legislation which are then put to the Treasury for inclusion or not in the Budget.

Twitter indicates that the Amazon guys are peeing off the MP’s no end.

I’m in two minds

1) winding up MP’s = good

2) avoiding taces = bad.

mmm.

andyrm
This is actually a very good point.

I know we always hears lots about big companies and rich people should pay more, why don’t we have flat rates for all?

Surely our skewed systems for both personal and commercial taxation are what drives minimisation programmes? If everyone paid the same percentage of revenue in the case of companies, and income in the case of people, it would be much harder to try and manipulate figures.

Just a thought – unless there are some economists who can explain why we don’t?
The fundamental problem with this is that the flat rate of tax would be higher than the rate the majority are currently paying. This is due to the fact that the top 1% pay 25% of the income tax, or the top 10% pay 50% (figures from Institute of Fiscal Studies)

So if you are a politician getting elected it’s easy to win power if you promise a tax cut for the majority, ie a return to different rates of tax.

As we have different rates of tax for individuals we cannot have one rate of tax for companies.

The reason we hear about the rich paying more is it get’s popular approval as the word rich translates into “someone else can pay more as I already pay too much”

As others have posted the fundamental problem here is the tax system is too complex and the EU (that includes the UK) has allowed member states like Ireland and Luxembourg to have very low rates of corporation tax.

Fortunately it’s easy to make the decision that Starbucks, Barclays and Vodafone don’t get a single penny of my money in their quest of making themselves even wealthier.

Certainly in the case of Vodafone, they have an investments division that invests in small, young tech companies throughout Europe to help them develop technologies that would potentially be useful to them in the future, as well as co-funding tech bootcamps (essentially incubator hubs) in several major European cities where they provide office space, infrastructure, support and funding too.

But of course, that doesn’t make good headlines for the media.

mefty
Generally HMRC Policy Division is responsible with coming up with proposals to change technical legislation which are then put to the Treasury for inclusion or not in the Budget.

IMO this isn’t a technical issue – it’s a fundamental problem with the UK and EU tax legislation. You are allowed to set up a company in another EU country and sell products into the UK. The customer pays VAT and you keep all the profits in another country. In the case of Starbucks etc you are allowed to charge “licence fees” for the use of brand names etc thus creating an artificial loss in the UK.

Well it is very surprising to hear reports that the companies are giving the MPs a hard time, after all the PACs Chairmanperson is Margaret Hodge and she is reportedly quite an expert on these issues. 😉

How many people here haven’t said to someone – “how much for cash?”

IMO this isn’t a technical issue – it’s a fundamental problem with the UK and EU tax legislation. You are allowed to set up a company in another EU country and sell products into the UK.

Hands are even more tied as freedom of establishment is a fundamental right in the EU treaty, my guess is that this would require a change in the treaty which in turn would require the consent of every country.

In the case of Starbucks etc you are allowed to charge “licence fees” for the use of brand names etc thus creating an artificial loss in the UK.

Depends on where the licensor is based but again could be protected by a Double Tax Agreement if commensurate with third party arrangements such as a franchise model.

How many people here haven’t said to someone – “how much for cash?”

Good point.

The fundamental problem with this is that the flat rate of tax would be higher than the rate the majority are currently paying. This is due to the fact that the top 1% pay 25% of the income tax, or the top 10% pay 50% (figures from Institute of Fiscal Studies)
So if you are a politician getting elected it’s easy to win power if you promise a tax cut for the majority, ie a return to different rates of tax.

As we have different rates of tax for individuals we cannot have one rate of tax for companies.

The reason we hear about the rich paying more is it get’s popular approval as the word rich translates into “someone else can pay more as I already pay too much”

As others have posted the fundamental problem here is the tax system is too complex and the EU (that includes the UK) has allowed member states like Ireland and Luxembourg to have very low rates of corporation tax.

Jambalaya,

Thanks for explaining that. Much better than the usual “the rich must pay” simplification I normally see!

How many people here haven’t said to someone – “how much for cash?”

I don’t think she was VAT-registered and she certainly wasn’t in a position to take a card payment.

Another problem here is the massive discrepancy here between how multinational companies are indulged – nice cozy chats over a nice lunch in the London club, and how small/medium businesses are treated.

When I was running my own business, we had the HMRC in going through our books with a fine tooth-comb. I got a severe telling off as I’d mistakenly claimed VAT back on some 1st class stamps. For the sake of couple of quid!

We once ended up paying a tax bill 3 days late, at the height of the financial shitstorm, as we had cashflow issues. They didn’t want to discuss it and just slapped us with a £1500 surcharge for the sake of 3 days.

The rest of us are just easy targets, while the big boys get away with murder

Its, just, like SOOOOOOOOOOOOOOOOOOOOOO NOT FAIR!!!! 🙁

Higgo – could you not see where to swipe?

It is the scale of avoidance that people are objecting too.

Asking to pay cash to avoid tax is no different.

Higgo – could you not see where to swipe?

I normally use the curtains.

Wish me luck with my job application at HMRC Compliance Unit!

Though the problem is the legislation and the loopholes it leaves, rather than the collectors and the accountants. Close the loopholes, solves the problems.

Then you just have to balance the risks against the gains, economically.

binners – that I agree with they come down hard where they can, easy targets.

binners – that I agree with they come down hard where they can, easy targets.

It’s a question of power, isn’t it?
SME is an easy target and simply going to cough up the money, Starbucks threatens to put 1500 people out of work. Which poloitician is going to allow that shitstorm?
It’s only not fair while I can’t take advantage.

According to FT blog Hodges is actually giving the Amazon guy a hard time. She points out the discepency between the location of Amazon’s activity and its tax saying that, “That really riles us. It riles us.” What wonderful irony.

How many people here haven’t said to someone – “how much for cash?”

I have no control on how someone/business accounts for their income, irrelevent whether its cash/cheque/cc – that’s up to the business. And based upon the companies under discussion…, its not your local trader that’s ‘pushing the rules’…

And if the Govt is happy to pi55 our money away with Tax ‘Dodgers’ (HMRC building lease) than its a bit rich of it having a pop at the same crowd.

My point is that most people have tried to avoid paying a form of tax. By paying cash they expect a discount.

My point is that most people have tried to avoid paying a form of tax. By paying cash they expect a discount.

Cash discount isn’t necessarily about not paying tax – it’s a PITA going to the bank to pay in cheques, they might bounce, you have to wait for the money, and most business accounts charge you for every transaction.

Also, if we are going to draw parallels with ‘cash in hand’ builders etc – it’s the equivalent of a builder who makes an absolute killing, but tells the taxman he makes no profit whatsoever.

What we forget is that the businesses are often in competition with locally owned cafes or shops who pay tax and ata higher rate than them as well

This boils my pish too.

In the US there’s something called the AMT (Aternative Minimum Tax) which is used to set a minimum threshold for tax to avoid wealthy people using allowances to reduce their tax burden too far. If the tax calculation that their arrangements put in place were to throw-up less than the AMT amount then they pay the AMT amount. Im sure it’s difficult to implement but maybe something that automatically sets a floor of say, 3% of locally derived turnover, might work?

I agree with this.

Also, if we are going to draw parallels with ‘cash in hand’ builders etc – it’s the equivalent of a builder who makes an absolute killing, but tells the taxman he makes no profit whatsoever.

Indeed. If you are big enough you can aford to pay people to do this for you legally, wther this is accountaing or setting up of offshore companies and renting your house to yourself etc. If you are small and able to circumvent a conventional salary and income tax, you can still pay someone to help you legally avoid tax, but it probably wouldn’t be worth it. So you either break the law or you don’t bother. I am not sure this the intention of the laws that allow this to happen was to allow huge companies to squeeze out small competitors. 😕

Out of interest, any figures about to indicate how many “bent builders” makes up one “starbucks/vodafone”?

Does anyone seriously believe that Starbucks would pull out of the uk if they have to pay the proper rate of tax? Seriously? Leave a massively profitable market to your competition, for the sake of paying what is, bar Ireland and Luxembourg, the lowest rate of corporation tax in Europe

It’ll never happen!!!

Binners, sheeple will still go to starbucks in their gazillions if they hoik up their prices to pay a proper rate of tax and keep their execs and shareholders happy. So no, of course they will not pull out.

FT commentary:

http://blogs.ft.com/westminster/2012/11/live-blog-google-starbucks-amazon-grilled-by-mps-over-tax-avoidance/#axzz2C224mF5C

Does anyone seriously believe that Starbucks would pull out of the uk if they have to pay the proper rate of tax? Seriously? Leave a massively profitable market to your competition, for the sake of paying what is, bar Ireland and Luxembourg, the lowest rate of corporation tax in Europe

This +1

This is a totally different argument to “we must have low tax rates for millionaires othterwise they’ll leave the country” (lets save that for another thread.

These multi-nationals will always want to operate in the UK as (viewed globally) we are an affluent nation.
This is simply about using every (legal) loophole to divert profits to low-tax nations.

TBH i dont even know why the government is bothering to “grill them”. Just change the f***ing tax laws!*

*granted I know its probably not that simple, but something needs to be done. Every single tax payer in the UK is facing a higher tax burden due to this.

if you know that a company behaves in this way then don’t use them.

when it comes to voting, vote for a party that opposes neo-liberal economics.

alternatively, whinge rather limply on the internet.

when it comes to voting, vote for a party that opposes neo-liberal economics.

Since neither Labour nor Tory will implement these sort of changes, and no other party will every gain a majority regardless of how many STW readers vote, it’s not going to happen.

If people really care they’ll stop buying Starbucks / Amazon / Apple products which will hurt them far more than 25% corporation tax. This will never happen. Therefore we can conclude that Joe Public, in general, doesn’t give a toss.

binners – Member
Does anyone seriously believe that Starbucks would pull out of the uk if they have to pay the proper rate of tax? Seriously? Leave a massively profitable market to your competition, for the sake of paying what is, bar Ireland and Luxembourg, the lowest rate of corporation tax in Europe

But binners, beyond the headlines, this really isn’t the actual issue. As Jambalaya pointed out earlier, this is all about tax harmonisation across Europe and the thorny issue of transfer pricing. Most countries are well-behind-the-curve here and its is a real problem with ecommerce companies like Amazon than we Starbucks that at least has physical presences across the UK.

Apparently the OECD is launching an initiative to try to create some harmonisation today. But there is nothing on its website.

edit: I can’t imagine there is any multinational company that is not involved in transfer pricing in order to minimise tax liabilities. So if we are going to start a boycott it will be a very long list!

I’ m already very selective about what companies i buy from. and I’d absolutely love to vote for a party that opposes neo-liberal economics!

Where do I put my cross?

@binners totally agreed on your points re: Starbucks not leaving.

I actually believe Starbucks is a net drag on the UK economy, aside from dodging corporation tax I strongly believe that with their average low paid / part time employee costs the UK more in terms of providing NHS health care, police and all the other social services than they pay in employee and employer taxes.

Where Starbucks has shot themselves in the foot is their senior management repeatedly talk about how profitable the UK is for them but at the same time they declare a loss for tax purposes.

Where do I put my cross?

i think you probably know. respect, communist party, socialist party, green.

The problem is that no matter how much the politicians huff and puff, the taxing rights have been signed away in international tax treaties which trump domestic legislation.

jambalaya – Member
Where Starbucks has shot themselves in the foot is their senior management repeatedly talk about how profitable the UK is for them but at the same time they declare a loss for tax purposes.

+1.

It would be interesting to see the numbers on that as they have attempted some defence with their argument that they have pai £160m in NI recently.

But given the coffee is so rank, should we care if they leave? More amazing is that people buy buckets of nasty tasting coffee at over-inflated prices. And the cup tops leak all over your hand when carrying it. For that reason alone, they should be banned.

I think you’re bang on there! These same companies are the ones not paying a living wage, thus their employees are topping up their income with tax credits, housing benefits ( most of the housing benefit budget isn’t the unemployed, but the low paid). which means that we as taxpayers are effectively subsidising their operations. Which makes their aggressive tax avoidance even more infuriating!

This is simply about using every (legal) loophole to divert profits to low-tax nations

This is the issue; the holding company being used by Starbucks is in Luxembourg which as a reputation as being a tax haven. If their tax system was the same as everywhere else it wouldn’t be possible.

The other point to make is that HMRC has to grant you an exemption for treating profits in the way that Starbucks does with its off shore Subsidiaries. Tax tends to be paid where its earned which means where the work is done. If Starbucks has a lot of goodwill or IP in its operation that’s been built up elsewhere (as with Apple and Google for example) the you can recharge that against profits in other operating locations. You don’t have to but if those operating locations have a higher tax regime then it makes sense to minimise profits in those locations and maximise them where you’ll pay the least tax.

EThics has got very little to do with it and any argument that states a company should voluntarily be paying more tax than it nee to is naive in the extreme.

@binners totally agreed on your points re: Starbucks not leaving.

Completely agree.

This guy is often fun to read especially for Osborne bashers. Here are his thoughts on this and apparently on R5L soon:

Why tinkering with transfer pricing rules will never solve the UK’s tax problem with multinational companies

This guy is often fun to read especially for Osborne bashers. Here are his thoughts on this and apparently on R5L soon:

He also ruins his occasional good point by being so political – from a blame perspective that article is poppycock, as is some of the tax analysis. I do have not time to explain as I am off out but might revisit tomorrow.