I gave evidence before the House of Lords last week on the Finance Bill 2013 and the General Anti-Abuse Rule in particular. A transcript is here.
Let's leave that particular issue aside for a moment and note instead that Bill Dodwell of Deloitte and the Chartered Institute of Tax made the claim:
There is one of the challenges: companies do not pay tax
This is one of the regular claims of those who love corporate tax dodging: if they can say companies don't pay tax then they can, of course, claim they can't dodge tax. It's a terribly convenient idea much beloved of the political right and the Oxford Centre for the non-Taxation of Business. The essence of the argument is that since companies are just a pile of legal contracts between people they don't really exist as such and only really people can pay tax for them.
Oddly the claim seems only to ever relate to tax paid. But let me re-present the argument, first like this:
Companies do not make profits
Isn't that obvious Bill? If companies can't pay tax then surely they can't make profits, can they? In which case all that reporting suggesting they do make profit is just wrong - and every single audit report Deloitte has ever signed off saying that accounts showing profits made are true and fair is also straightforwardly fraudulent since according to the argument that companies can't pay tax never once was the profit made by a company. I hope Dodwell now has the decency to say so.
Let's try another reformulation:
Because companies can't pay tax they should be taxed as if they're individuals under income tax rules at income tax rates on their worldwide income just like all other natural people
Now that, I think, works nicely. A UK company pays UK income tax rates now at standard tax rates of 50% and shortly to be 45% on their worldwide income wherever arising and whether remitted or not to the UK and let's stop all of this nonsense about territorial taxes, remittances, and so on for companies. Let's create a level playing field. That should give Bill Dodwell something to think about.
Alternatively he and others who claim companies can't pay tax might like trying to tell the truth, which is that they can, they do, and if they don't the burden is shifted onto others.
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I wonder how his American listeners squared this with this (outrageous tosh, in my view) Supreme Court judgement in Citizens United, which adjudged corporations to be “individuals” in the eyes of the law? See http://en.wikipedia.org/wiki/Citizens_United_v._Federal_Election_Commission
If companies are so to be considered, then of course they should taxed as per your reformulation, namely “Because companies can’t pay tax they should be taxed as if they’re individuals under income tax rules at income tax rates on their worldwide income just like all other natural people”
I suspect there will be a loud noise of scuttling amongst some of Dodwell’s listeners, especially the American ones, as they seek to regroup, and, as in “Animal Farm” hastily repaint the slogan on the wall to fit in with their latest take, so that it reads “All individual are equal, but companies are more equal than others”.
“A UK company pays UK income tax rates now at standard tax rates of 50% and shortly to be 45% on their worldwide income wherever arising and whether remitted or not to the UK and let’s stop all of this nonsense about territorial taxes, remittances, and so on for companies. Let’s create a level playing field.”
This basically states that individuals pay the ‘difference’ between what they pay in tax in some foreign jurisdiction and what they would have had to pay here does it not?
Presumably only individuals who are domiciled here have to pay that? So would it be possible to get that additional tax from companies that carry out trade here but are not based here? Thanks.
The suggestion I made was ironic
If we take Starbucks Coffee Co. (UK) Ltd and the declared profit of £78.5million https://www.duedil.com/company/02959325/starbucks-coffee-company-uk-limited when then is the auditors or company accounts advising of their duty to pay Corporation Tax? https://www.gov.uk/audit-exemptions-for-private-limited-companies
Perhaps if Mr Dodwell believes that companies do not pay tax he could have a word with his counterparts at PwC who recently published a survey claiming that the tax paid by UK corporates had increased in recent times. PwC of course achieved this smoke and mirrors presentation by counting in VAT – which is of course a tax which is only collected by corporates and where most of the burden falls on individuals.
On the subject of “true and fair” profits being shown in accounts it is worth noting that it is now becoming increasingly common practice for tax advisers to try and steer the accounting profit (which is often the starting point for tax computations) towards the most beneficial tax position – with the approach being taken that most things are allowed unless they are specifically ruled against by an accounting standard. So rather than “truth and fairness” and broad principles being used to define how to account for the many items for which there is no specific acounting treatment – the gaps are filled by what the tax adviser wants – and woe betide the career prospects of any bright accountants who seeks to push a more principled approach. It is also a not too well kept secret that Mr Dodwell’s Deloittes and Mr Moral Otty’s E&Y have a rather more flexible approach in this regard than the other members of the Big 4 who still have some backbone left in their technical departments.
Distributions from companies should carry a true refundable tax credit equivalent to the amount of tax paid by the corporation. Ultimately this would mean that a distribution from a corporation that paid relatively little tax would be subject to more tax in the hands of the recipient, whilst a distribution from a corporation that paid tax at higher levels would be subject to less tax in the hands of the recipient.
The current system means that distributions by corporations that have paid little or no tax are treated as though they have been taxed at 20% and companies that have paid at the higher rates (now admittedly closer to 20% than ever) are treated as having paid the same.
I appreciate that this doesn’t deal with companies failing to distribute at all, but distributions should come eventually and it would negate many of the benefits of avoiding tax at the corporate level. Where distributions are made to non-UK residents I see no particular problem with some form of withholding.