As the Guardian notes this morning, anger about large corproations not paying tax is growing. Ebay and IKEA are the latest to attract attention. I confess to involvement in the first story, having advised the Sunday Times on it, and the latter is not particualrly new - having been featurfed on this blog a number of times before - but the point is that the appetite for this story is not going away. The awareness has now been created that there is one rule for large mutlinational companies trading in the UK and another for smaller, local companies that are based in the UK and quite probably trade nowhere else.
What that means is that the awareness has been craeted that in their desire to open the UK for business the Tories have given the clear indication to multinationals that the UK tax system is for them an honesty box system where if they'd like to pay some tax that would be nice, but if not, well, don't worry. The Tories dedication to creating a territorial tax system - where no questions are asked about what happens outside the UK - is the cause of this change in culture.
It's clear taxes have to be designed so that business is not impeded inappropriately. I think anyone would agree that, but the reality is that this Tory folly, and the messaging that goes with it, means that we now have a tax system that is designed to harm domestically owned and smaller business whilst big business simply does what it wants.
Might that sound anything like the attitude of the 1% who care nothing for the rest? I think so. And it's incredibly harmful to the UK. It's awareness of this that seems to be creating a tipping point in tax now. I'd say it's long overdue, of course, but it's welcome nonetheless, and now is the time for real reform.
But that's another blog.
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This looks like plain and simple extractive capitalism or socialism for the 1% and multi-nationals.
The NY Times had an interesting article on the self destruction of the 1%. It seems we’ve been here before and I recommend reading this. My apologies if you have already mention it.
http://www.nytimes.com/2012/10/14/opinion/sunday/the-self-destruction-of-the-1-percent.html?pagewanted=all&_r=0
Here’s something from City am, where the editor comments that the UK could be used as a cash cow.
http://www.cityam.com/latest-news/allister-heath/we-need-do-more-encourage-firms-spend-the-uk
I would add that I’m diametrically opposed to the “solution” that he would suggest to this problem.
Tax cuts do not lead to wealth creation. It’s time this myth was truly buried. In fact, they appear if anything to encourage extractive capitalism and investment in the financial sector, which has become parasitic.
Richard,
I was wondering you could copy and paste the pie chart of the tax takings from all the taxes, so that the puny contribution from corporation (which is really the big message from these stories) becomes apparent and well publicised. I don’t have access to a desk top to get it but the chart is usually in HMRC’s annual accounts.
I am not near a desk top either
Sorry
When corporations are not paying tax they are either doing so in accordance with the law or contrary to the laws.
So far there has been no indication from anyone that companies such as Starbucks, Apple etc are not acting in accordance with law. They act in accordance with the system.
What the press are advocating is nothing more than taxation by mob rule. Whither the rule of law, and welcome to tax anarchy.
That is utter nonsense
We all know aggressive tax avoidance exists
And we all know there is a spirit to the law
So stop spouting compete untruth
But isn’t that how the EU works? A non-EU company can set up anywhere in the EU and trade from that base throughout the EU.
A company than sells from one EU country to another EU country makes a profit, and that profit is taxable in the country from which it made the sale. It is entirely logical that the country of sale makes the taxable gain (i.e. Mercedes or Audi in Germany), rather than the country of purchase. Can you imagine how Germany would react if it was the UK rather than Germany who earned that tax on profits from sales of Mercedes to the UK?
A non-EU company is surely going to choose which EU country in which to base itself. One major factor is going to be the rate of corporate tax payable. Countries like Ireland and Luxembourg will always be favourites, for obvious reasons. But even if the non-EU company chose, say, France as its central EU base, tax would be paid in France rather than in the UK on sales from France to the UK, so the UK is no better off in terms of tax revenues. It therefore doesn’t matter to the UK whether the non-EU’s chosen base in the EU is in Luxembourg, Ireland or France. It would only make if a difference if it was in the UK, in which case every other EU country would be suffering in exactly the same way that the UK is missing out now on sales to the UK!
This is precisely how the EU was designed to work in order to attract non-EU business as a single EU market. The missing link is harmonised corporate tax rates so that US companies would not choose low-tax EU countries, but even with that in place (which clearly isn’t going to happen), every single country into which the US company makes sales from that base, other than the base country itself, would be missing out on tax revenues.
The EU single market just doesn’t work from a tax perspective, without a single EU economy and a single EU exchequer, and there is clearly no appetite anywhere for that. Until and unless that happens, these sorts of anomalies will continue to be capitalised upon by non-EU companies wishing to sell within the EU.
Its hard to see that it is tax avoidance as it is merely implementing what the EU sets out to achieve, but if it is tax avoidance then it will always be tax avoidance because even if, say, Germany was the chosen EU base and so received all the tax revenues, tax would still be getting “avoided” in every other EU state, without any tax avoidance motive whatsoever by the non-EU company.
The EU is not a single market for tax. It is 27 systems. And nothing suggests abuse of transfer pricing (if it has happened) is in any way consistent with EU law. Nor is the use of tax havens. You may have noticed the EU is tackling tax abuse through its Code of Conduct – dealing most heavily with tax havens and profit shifting via its CCCTB. Your claims are so selective they are ridiculous.
Well, yes aggressive tax avoidance exists…………but this ain’t it.
This is how corporation tax works in the EU – it’s how the system was designed to work.
It’s therefore in keeping not just with the letter of the law but also the spirit.
Not tax evasion, or avoidance, but compliance.
If Worstall is wrong, can you explain why?
You ignore transfer pricing abuse, the use of tax havens and exploitation of debt interest relief
None are in EU law
But then, why would that worry Worstall?
The spirit of the law does not operate beyond the limits of its language.
I agree that aggressive tax avoidance exists but it is unproven that any of the companies mentioned recently are involved in aggressive tax avoidance. Nothing more than bald allegations.
In fact there is so little detail about the tax affairs the of Starbucks etc that one has to call into question the veracity of these claims.
If Starbucks is involved in tax avoidance as you and non-tax journalists claim, it would be interesting to see your explanation of how the Murphy/Meacher GAAR could counteract this, if in fact the GAAR can counteract it.
Easy – if a royalty results in a loss it is not undertaken for a commercial motive and so could be ignored under the Meacher / Murphy Bill
The fact that there is no single market for tax completely undermines the objective of the single market for trade, but the fact is that’s the status quo. There never has been a single market for tax and national interests of members will ensure that it won’t come about. As a result, companies are free to operate from any EU state, and that includes choosing one with the lowest tax. EU law will protect any company which is told that it cannot choose Ireland or Luxembourg.
I would also stake my mortgage on any attempt by the UK to claim that its own transfer pricing rules should override the freedom of establishment provisions – the EU rules would win every time.
The EU has to play the hand that it has been dealt. The fact that it was also the dealer doesn’t help.
Justin
And how exactly in a democracy should people campaign for a change in (tax) laws which they dislike and don’t believe to be fair, and seek to encourage others to vote for such changes? Where exactly have the press advocated that tax laws should be changed by “mob rule” rather than the usual democratic processes – or are you capable of understanding such a distinction?
Just noticed from Saturday’s FT how the coalition is proposing to help all those stuggling trust fund kids by removing the 6% periodic tax charge on certain trusts. Another example of how we all all in this together I presume!
It is worth looking at Table D3 on page 106 of the Budget Report here http://cdn.hm-treasury.gov.uk/budget2012_complete.pdf just to see how the Coalition intend to increase the tax take in future – the broad picture is that there will be next to nothing in extra corporate taxes (so even the Tories don’t really believe that lower tax rates will incentivise growth and further corporate taxes) but there will be substantial increases in income taxes (but not for those on the top rates) and VAT.
At times I wonder if the government takes the poulation for being stupid as it has not worked out that the other side of the government deficit is largely a large surplus in the corporate segment. Reduce the latter by corporate taxation and/or making the corporate sector invest then you will see the government deficit reduce.
Excellent point
Thanks for reminding me of that one
the spirit of the law !?!? what on earth !
unfortunately the LETTER of the law says companies can sell subsidiaries tax free, can use the patent box relief to obtain very low rates of tax on IP, can use the offshore funding rules to obtain very low rates of tax on interest income.
All the above are undoubtedly “wrong” as far as the press are concerned, but they are actual statutory reliefs…………
whether we all agree with these statutory reliefs and the impact they have on a multinational group’s tax position is another point, but the intention of Parliament is that they should be claimed.
Oh, the black and white view – first that manipulating to get the relief is not abuse and secondly that to demand change is somehow unacceptable even if entirely consistent with democratic principles
[…] 3. Richard Murphy: Tax Research UK Has the public’s tipping point on tax arrived? […]