The Times has reported this morning that:
Some of Britain's biggest listed companies, including several that have threatened to redomicile abroad, paid little or no corporation tax in Britain in 2007.
Research by The Times shows that FTSE-100 companies - Cadbury, Standard Chartered and British American Tobacco, which have a combined market capitalisation of £75 billion, employed almost 11,000 UK staff and generated more than £6 billion in global profits, - paid zero corporation tax in Britain last year.
As the report goes on to note:
Richard Murphy, an accountant with Tax Research UK, who contributed to the research, believes that the system is in urgent need of reform. He said: "Why does the UK have a tax structure where you can have significant operations in the UK but pay all your tax overseas? We have an extremely generous corporate regime, which needs to be reexamined if this is the case."
And:
Mr Murphy cited Rolls-Royce, the jet-engine maker, which employs 22,900 of its 38,600-strong global workforce in the UK but paid only £13 million in British taxes last year because the majority of its £733 million pretax profit was earned from overseas sales. Rolls-Royce, which says that it has no plans to relocate overseas, pointed out that its UK manufacturing and research operation was costly.
However, Mr Murphy said: "This cost structure is inevitable, but international rules for pricing within a group of companies allow for this and should usually result in tax being paid where the profit is generated. I'd usually expect that to be where most of its people are, especially in an R&D-based company."
This analysis was all undertaken by the Times using data in the companies' own accounts.
The analysis of Rolls Royce simply applies a unitary overview to what then seems an odd result.
But the strangest comment was by BAT, which paid no tax in the UK in 2007:
A spokeswoman for BAT, the twelfth-biggest company in the UK by market value and the owner of the cigarette brands Lucky Strike and Pall Mall, said that its head office operated at a loss and that 99 per cent of its profits were earned overseas.
There is only one commercial response to this. If a head office loses money it cannot add value. In that case the group is not worthwhile mainatining and should be broken up on commercial grounds. Shareholder value must be increased in this case if it were.
I await BAT's response.
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If the parent company is UK registered, it can only pay dividends to shareholders out of its post-tax income (whether that’s 30% UK corporation tax, 20% foreign tax plus 10% UK corporation tax, 30% foreign tax and no UK tax, or 40% foreign tax and no UK tax).
So in the long run, BAT can’t get away with paying less than 30% tax on its global earnings – or at least, it can’t actually pass that money onto its shareholders. Taking one year’s figures and saying “ooh, bad, evil” based on that is a complete joke…
[companies like Shire, which relocate the parent company to low-tax jurisdictions from which they can directly pay out dividends to shareholders, are completely different – in that case, it is indeed possible to avoid UK tax]
John B
You’re right in para 1
You’re right in the first part of para 2 (for now)
But the point is that it has done this for many years
This is not a one year analysis. This is not a joke
Please do your research
Richard
I was going by the information presented in the Times article to which you contributed, which made reference solely to 2007 and strongly emphasised the 2007 numbers. I don’t think it’s reasonable to criticise me for criticising you for only looking at one year’s figures when your piece only referenced one year’s figures…!
Presumably the reason BAT has been able to do this for many years is that instead of repatriating overseas profits, it’s used them for investments and expansion overseas…?
I cannot find a reference in the article to the overall tax rate of these companies – ie the ration of worldwide tax divided by worldwide pre-tax profit. That is the key ratio rather than the arbitrary UK ratio of UK corporation tax to UK attributable profit.. In any event, corporation tax is an unnecessary burden on businesses. Businesses already contribute rates and employer’s NIC, landfill tax, insurance premium tax etc etc. Their employees contribute VAT, council tax, income tax, CGT, employees’ NIC, stamp duty. If corporation tax were scrapped, we could all get a pay-rise, which Fat Gordie would then clawback through increased income tax and NIC.
Diogenes
For the data on overall rates see The Missing Billions (just search this site).
Since there is no world tax rate and since these companies are UK based the only comparator that is valid is the UK rate.
Your argument on CT being an unnecessary burden is absurd. On that logic income tax is also an unnecessary burden on people. It is not: we need what the tax pays for, as does business need what CT pays for.
And the evidence is that if CT was cut the result will be increasing income disparity: nothing else.
Richard