It's one of the oddities of the work that I do that I've had to learn to manage the media over the last few years. I admit I've had no training (and that might show) but more by luck than judgement, and entirely because of what I've had to say, I seem to have slowly but steadily worked my way around all sorts of media.
Last night was a first though - my first time live in the Newsnight studio with Jeremy Paxman. As the man has a reputation, it made the occasion interesting.
Was he fair? Well that's for others to decide. I think he was. It was also amusing to watch him switch instantly from cordial off air to a mildly aggressive on air persona.
I was there to talk about the reforms the government is proposing to UK corporation tax. Many - including my co-interviewee - would like us to see these as mere admin reforms, tidying up arrangements after Labour exempted dividend recipts from overseas subsidiaries from further tax in the UK in 2009.
I stress, that was a massive error on Labour's part. I won't beat about the bush on that. It began a process of dismantling several fundamental elements in the UK tax system. And that's exactly the point I, Richard Brooks of Private Eye and George Monbiot are making. It's terribly convenient to say this is just a bit of admin. It isn't. It's another step in the steady dismantling of the effectiveness of the UK corporate tax system that is intended to allow major corporations to get round as many of their tax obligations as possible - a process that will inexorably lead the way things are going to them being entirely free of tax.
The fact this is being done in stages is part of this subtle, but deliberate process. It's so convenient for the terribly conflicted John Whiting (ex PWC partner, professional spokesperson, head of the Office of Tax Simplification and so a government insider) to say this is just a bit of admin catch up for branches. But read the consultation document and it's nothing but that. Twice it says the aim is to provide UK corporations with effective tax rates of less than 10%. OK, that's on their financing and intellectual property activities offshore - but that's core to where the profit is in many groups. This is no peripheral issue costing £100 million (and I've seen these Treasury assessments - they're pure mumbo jumbo). This is the dismantling of the central avoidance process at the heart of UK corporation tax. A number of key issues are at stake here.
First there is the principle of reciprocity - that all people should be treated equally. People, whether human or legal, that is. People (non-doms apart) who are resident in the UK are taxed on their world wide income. So in principle until 2009 were corporations. And then, building on pre-crash fears of corporations leaving the UK Labour relented and changed the law on income remitted from foreign subsidiaries, promising at the same time to reform the controlled foreign company rules to ensure that appropriate anti-avoidance rules were in place. Except they failed to deliver on that part of the deal, with the result that some companies actually left because of the vacuum of uncertainty that this created. But what we now have is a situation where people (and to large degree small business) will pay tax on world wide income and big business can virtually select what it will pay tax on in the UK. Reciprocity and the level playing field has gone. People will pay. The small business that is vital to the Uk will pay. Big business will get off tax free - and we'll all pay for that in terms of monopoly abuse, a loss of innovation, a loss of jobs and of course a loss of services.
The ConDems have now exploited this uncertainty to dismantle anti-avoidance measures. These are in three parts. Transfer pricing stops profits being transferred out of the UK. Controlled foreign company rules were meant to stop UK corporate activities in tax havens exploiting the UK by deeming those subsidiaries to be UK resident. And if these two failed then taxing profits on their way back into the UK was meant to pick up the pieces and ensure we got the tax somewhere.
Supposedly transfer pricing rules will remain - except that revisions to the CFC rules have been deliberately designed to ensure that UK companies will in the future pay no more than 10% tax (or less) on their group finance activities and international property located in tax havens. In that case why challenge these profits leaving the UK? We're basically saying "p;ease take them away, it's OK with us that you do" and this is the area where transfer pricing control is needed most now. Given we've now also given up taxing these profits on the way back in we have now, in effect, given up the right to tax whole areas of UK corporate tax activity at more than 10%.
And as I said on Newsnight - if you tax a smaller profit base (and we will) at lower tax rates (and the ConDems have promised them) then you're bound to get less tax - it's a mathematical certianty - and the loss will be a lot more than £100 million, I guarantee. The incentive to move profit out at will be far too great. Expect the loss to run to billions.
And this is, as I also said, a choice. A choice to pass the burden to ordinary people. A choice to make small business pay and lose out to big business. And most of all an unnecessary choice. The UK could cooperate with Europe to drive for a Common Consolidated Corporate Tax Base for Europe to stop such abuse - a process that could drive out such abuse from UK tax. But we oppose that EU move that would ensure we had more profit to tax here. So this is not something we have to do. This is not something forced on us. This is not the inevitability of globalisation. This is the ConDems choosing to give tax back to big corporations.
That's why it was right to make a fuss on this issue.
It's why corporate tax will remain high on the agenda.
And that's why the apologists for this reform are wrong - this is no admin issue, this is subterfuge to undermine the Uk tax base.
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“… I’ve had to learn to manage the media over the last few years. I admit I’ve had no training …”
All the world’s a stage,
And all the men and women merely players;
They have their exits and their entrances,
And one man in his time plays many parts,
His acts being seven ages.
As You Like It Act 2, scene 7, 139—143
Just watched the discussion on iPlayer (why no link?)- your performance was first class and there is definitely no need for any media training given the great response to the opening remarks from your host and inquisitor
you were superb last night. well done.
The ConDems have now exploited this uncertainty to dismantle anti-avoidance measures.”
Absolute nonsense, they were already in the process of being dismantled before the election and largely through the decisions of the ECJ.
Stop peddling untruths. It does nothing to an important debate.
@Justin
Ah, I get your argument – the government has nothing to do with this at all
Of course….that’s obvious to everyone
Who has then?
Tell me the truth! (or your own view of it)
Your point that subsidising big business at the expense of individuals and smaller firms is harmful for innovation is very well made. The govt seems worried about the wrong type of competitiveness.
Great interview, by the way.
Here’s the link for those who don’t have it
http://www.bbc.co.uk/iplayer/episode/b00yzjkm/Newsnight_21_02_2011/ starts at 27.30 mins
I know its a bit presuming …. But I was so proud of you last night! You had just the right amount of ease, humour and certainty to put over the case effectively… very well done.
@ Justin; are you in agreement, whoever you hold responsible for this, that these reforms are wrong then?
Richard, I was proud of you too. Well done. You were firm with Mr Paxman and kept him in check. A great achievement. Just two queries. So we are stripping corporations of tax obligations to ensure they come and do business here? Does that mean that those of us that do pay our taxes, will be financing their use of clean pavements, rubbish collection, crime prevention, public transport, beautiful open spaces and parks, BBC culture and music, the ARTS etc…etc.? And does that also mean that while they can be global in their tax avoidance, they will be national in their tax bail-outs? Just so we know how much ‘being internationally competitive’ is going to cost us all?
Richard you have previously argued that profits should be taxed where the underlying economic activity takes place. If profits are earned in Britain they should be taxed here, if they are earned in France they should be taxed there. Logically, if they are earned in the Isle of Man (unlikely as that may be) then they should be taxed in the Isle of Man.
Recently however you seem to have moved away from this towards the view you put forward in the above post, which is that UK companies should be taxed on their worldwide profits. If that’s the case, and forgive me if I misinterpret you, then this will distort behaviour. I’ll try to illustrate this via the example of two companies. Each has a branch in the UK and a branch in Ireland. The first company is a UK company and the second company is an Irish company. Logically both companies should pay the same amount of corporation tax – economic activity is the same in both cases and so the simple fact that one company happens to be registered in Ireland should not impact on the tax liabilities of the two companies. That is in fact what the new corporation tax reforms are aiming towards – profits only taxable where the branch is located.
If each company is also taxed on the profits of its overseas branch, then suddenly it becomes much more valuable to base yourself in Ireland, because the UK company has to pay an additional 15.5% tax on its Irish profits for a total worldwide corporation tax rate of 27%, and the Irish company pays nothing more in respect of its UK profits so has an average tax rate of about 19.75%. The approach you advocate would promote tax competition between countries and increase the use of offshore jurisdictions.
@Ann Pettifor
As usual you hit the nail on the head
We will of course bail then out – we are now their capital – but they keep their profit offshore, now with UK gov’t consent. This is the core of this change and the profession and gov’t like to say it is a small admin issue
How much wil, the cost really be? Billions – I am sure, and maybe many billions
Best
R
@Adam
I am sorry – but you seek to split hairs where there is no hair to split
I argue for source taxation – pay profits where they arise
But clearly in the case of a holding company this is not enough – a holding company adds value by the action of its central board – which value should be taxed where that board is located – really located – not the shams we now see
If the board really is in Ireland, so be it. Source taxation in the UK only
If an Irish company is really located in the U and is a holding Company then tax its worldwide profits here with credit for source given
A wholly logical situation where nether double taxation or double non taxation should occur
But you want the latter
And let’s be clear – nothing happens in tax havens – so it’s unlikely profits should ever be located there anyway but for the action of accountants and lawyers
Approx 28 mins in.
http://www.bbc.co.uk/iplayer/episode/b00yzjkm/Newsnight_21_02_2011/
@Ann Pettifor
Sorry to ask, but how would a coporation enjoy this type of things? there are not many companies pushing stollers or walking the dog on Hampstead Heath or standing in front of paintings at the British Museum. Only genuine humans can do this.
I saw it too, last night. I thought that Paxman gave the right provocation for the argument to made clearly. Considering the fractions of minutes one gets to get the point across, I think you have done very well.
After the rank degradations you face in the CDs, an appearance on Newsnight (Newsnight!) seems to beg the ‘are you an expert’ question they so delight in hawking.
I thought you came across like a real pro’.
Just wanted to ask, did the League of Nations actually consider global taxation? What is your primary source for the basis of their decision making?
I am interested because I think the current OECD Model is working to the advantage of multinationals etc, but to the disadvantage of the general population. Whilst ‘firms’ now operate in a global market: governmental regulatory bodies do not.
Come the next banker bail-out the burden will fall even more on the tax payers. But as Call Me Dave has told us we can all take solace in the idea that “We’re all in it together.” Thank you Gov for that inspirational thought!
@Richard Murphy
So you want residency to be based on where the company is controlled not where it is effectively managed.
Then you have a situation where a company is controlled offshore but managed in the UK not being subject to UK tax. Excellent idea.
@Steph
Simply, the LoN never considered global taxation. Apart from the EU, the idea of global taxation has never been considered and is considered idealistic and unrealistic.
I believe that Jeremy Paxman and Chrystia Freeland between them made two very significant points (over and above the excellent contribution made by Richard):
1. Big mulinational companies are blackmailing governments (and will always do so as long as their financial engineers can find looholes).
2. We need GLOBAL agreements, which requires GLOBAL government.
As Richard said, the League of Nations focussed on national arrangements. They got it wrong because they were too shortsighted to see the INEVITABLE trend towards (regional and) global corporations. The EU is focussed on regional arrangements. They are making the same mistake. Whatever governments do at the national and/or regional level will ALWAYS be trumped by financial engineers in a race to the bottom via tax havens.
We need a GLOBAL CRITICAL MASS arrangement to a rising minimum rate of tax on unearned income and super-normal earned income, and GLOBAL CRITICAL MASS teeth to allow complying regimes to exclude diversion of such income through non-complying tax havens.
All the rest is (constructive) noise to keep the issues on the agenda. Keep it up Richard, but don’t waste too much air time arguing against the ‘business will go elsewhere’ argument. It is far too easy for ‘them’ to argue back with fear, uncertainty and doubt. No-one can argue back in that way against the GLOBAL argument.
@Tim Knight
Good argument Tim
@JayPee
Actually, I asked for the primary source for the League of Nations discussions. Perhaps Richard would be kind enough to answer my question.
Global taxation has been repeatedly considered by the OECD. It is the mechanics of how this would be put into place which are complex but possibly not insurmountable. With regard to information exchange; the OECD has moved closer to something approaching the transfer of information on a global basis.
There is of course formulary apportionment as a way of dividing profits.
A lot of people believed the world was flat and that ‘man’ would never travel to the moon; but circumstances overtook them. A little bit like what happened in the immediate aftermath of the financial crisis.
@steph
My source is the work of Prof Sol Picciotto of Lancaster University
I’m not sure of there is an online source
The point is that Sol has advised me the League looked at arms length v formulary apportionment and opted for the arms length basis the OECD has defended since the 1960s
The CCCTB is moving closer to formulary
And I do believe it viable
I don’t say it will stop all gaming – but it would be better than what we have