WPP is moving its tax residence back to the UK. Osborne has bribed them back with his absurd new rules that exempt a UK parent company from almost all tax on profits that the company can shift into its tax haven subsidiaries.
But this actually says one thing - which is that it is ludicrous that such an important matter can be so easily determined by a company at will. Absurdly the residence of a company is, broadly, set by the place where the board of directors meet given that other appropriate legal structures are put in place, which is not hard to do. Now the rule on where the board of directors met made sense in the steamship age when it was established (in 1929) but it makes no sense at all now. The fact that a board can meet almost anywhere for a few hours travel makes this a meaningless concept.
It's time that this silly opportunity for massive tax avoidance was closed and residence was determined on more fundamental factors, like where the head office is. WPP's never left the UK.
How about it George? Or am I asking the wrong man?
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What about all the eu countries with the same management and control test though? What is your proposal, a simple place of incorporation test (if so dosent that make it even easier to avoid uk tax as people would just trade in the uk through a non uk incorporated entity)?
Why wouldn’t people just move their head office?
I thought tax rules didn’t drive peoples behavior anyway? Perhaps wpp is an exception to your oft quoted mantra?
Ultimately I propose unitary apportionment formulas – as in the CCCTB
These overcome the farce of this issue
“It’s time that this silly opportunity for massive tax avoidance was closed and residence was determined on more fundamental factors, like where the head office is. WPP’s never left the UK.”
While I agree that tax residence should be determined by more fundamental factors, surely this could have the impact of being damaging to UK’s tax base. I could think of numerous large companies which are notionally based in the UK as they are listed on the LSE, but fundamentally aren’t British companies (numerous mining companies, SAB Miller etc)
SAB Miller is a great example. We are indeed very lucky to have a global brewing giant ‘headquartered’ in London. SAB Miller (essentially a south african company) paid $39m of UK tax on its global profits of $5bn or so (see note 7 to the accounts on their website).
Even if the company was incorporated in South Africa and headquartered there, it would doubtless pay the same UK tax, which will be attributable to sales of beer in the UK.
As Richard says, the ease at which companies can move about is troubling. I have no doubt it is the reason that the UK relaxed the laws on taxation of overseas profits; we have given up on trying to tackle corporate tax avoidance.
The solution is simple (conceptually) but politically difficult:
1) An apportionment system drafted by the OECD to allocate taxable profits within a multinational depending on the location of staff/assets/customers.
2) Unilateral taxation of UK profits on that basis, ignoring intra-group debt, management charges, transfer price adjustments etc. etc.
“Even if the company was incorporated in South Africa and headquartered there, it would doubtless pay the same UK tax, which will be attributable to sales of beer in the UK.”
If that is the case, why are we even worried about it? Though I probably would prefer the UK gets the income tax, NI and VAT from all the head office employees based in the UK.
“1) An apportionment system drafted by the OECD to allocate taxable profits within a multinational depending on the location of staff/assets/customers.”
Surely that is unworkeable – staff would all be moved to the lowest tax jurisdiction, as would assets and even the location of customers can be changed when selling to another multinational or using third parties. Companies will always try to minimise their tax bills as that lowers the cost of capital and allows lower prices and hence greater competitiveness. All we should be concerned with is making sure they do it within the law.
We think more should be paid here
And labour does not move
You claim that lower taxes = lower prices = more competition is absolute nonsense
Look at Apple
Why not look at the real world? An economists blackboard or a neoliberal doctrine are both far removed from anything like reality
I guess you saw this further letter in today’s FT: http://www.ft.com/cms/s/0/08129a88-f76a-11e1-ba54-00144feabdc0.html#axzz25g7RPjK8 ‘WPP’s return to Britain is telling’. Proof positive of who holds the reins of power.