The fight back against the suggestion that companies are tax avoiding is well under way. John Gapper is arguing in the FT today that companes like Starbucks simply complied with the law and that as result no tax avoidance took place. The same argument has certainly been made by commentators on this blog. And I have to say I have no truck with it, not least because the argument is utterly illogical. I well remember the form of it put to the BBC by a tax avoider whose affairs were being investigated as a part of a programme I was working on, which was "I did not avoid tax because there was no tax due. As such there could not have been tax avoidance because you cannot avoid what is not owing".
The argument was, of course, absurd: the avoidance was in putting in place the structures that ensured that no tax was due. The avoidance was confirmed and not denied by the outcome, and yet Gapper clearly buys this logic in the FT. He's wrong to do so. As I mentioned yesterday, evidence from the USA is very clear: substantial profits are recorded in countries like Bermuda, the Netherlands and Ireland where the levels of economic activity of the countries recording those profits in those places cannot justify the levels of name recorded there. That profit shifting int those low tax locations is not chance, it is deliberate. The tax avoidance takes place when structuring companies to achieve that outcome.
Where Gapper has a point is in arguing that it is hypocritical of a country like the UK to complain when it is so obviously engaged in tax competition itself. I have sympathy with that argument, but then I have always been quite willing to recognise the role of the UK as a tax haven, for that is what it is. Making this point does not, however, mean that companies are not tax avoiding as Gapper (who interviewed me when preparing his article) seems to think. Far from it: tax avoidance has always at least in part existed with the active connivance of some governments, and the current UK Tory government is both blatantly promoting tax avoidance whilst criticising it with a split personality that typifies its absence of real thinking, let alone strategy, on so many issues. Tax avoidance is happening therefore, no mistake about it.
Let there also be no mistake about it that tax avoidance could not happen without active commercial support. That is what this morning's hearing before the Public Accounts Committee is about. I will be tweeting it live.
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‘and the current UK Tory government is both blatantly promoting tax avoidance whilst criticising it with a split personality that typifies its absence of real thinking, let alone strategy, on so many issues.’
I think you’re wrong on the absence of real thinking or strategy on this one, Richard. As I’ve commented before, I think there’s plenty of evidence to suggest that the strategy is that the rhetoric from Cameron and – to a lesser extent Osborne and others – is cover while they put in place a low tax regime for big business and the 1%. This includes many of the regulations and devices (such as the agreement with the Swiss) that you frequently cover here.
By tying any anti-avoidance measures in the UK into the need for international developments (through the G8 or OECD) – that is, deny the UK can act unilaterally – the Tories know that by the time anything on avoidance actually happens they’ll have in place the necessary legislation that makes the UK such a low tax haven that the Google’s and Amazon’s of this world won’t have to avoid. Theyll be handed it on a plate and all legal and above board. We are, after all, in a race to the bottom as far as taxing big business and the rich are concerned.
I dare say if we were flies on the wall at the various meetings with Murdoch, and the CEO’s of Google, etc, etc, this is the message that’s being conveyed to them. And is this unplanned? No way. It was almost certainly something worked on in opposition with the various secondees from the Big Four, and then discussed and agreed with the puppet masters in the City.
I’m aware that this may indeed be the strategy….
I think Ivan’s analysis is spot on! What we’re going is an elaborate charade before launching UK tax haven plc!
After all the British are great at farce!!
You’re quite right that structuring can constitute avoidance.
I’m not so sure that a structure that happens to result in a lower tax bill is necessarily avoidance, though – ceteris paribus, why should one set up in a higher tax jurisdiction rather than a lower tax one, for example?
I’d be interested to know what structures you think should be used by, for example, Amazon, Starbucks and Google, and what impact it would have on their UK tax bills. Clearly “not in Bermuda” will feature in there, for one thing; although from a UK perspective it doesn’t really matter if amounts are paid to Bermuda, Ireland or the US, if they’ll still be deductible in the UK.
You may not think that
The public disagree
Is it beyond the wit of man for the international community to decide on what ‘structures’ are legitimate for a limited number of valid business organisations, or is it just too complicated?
They do?
The ones I talk to don’t. They start off with “it’s terrible how people pay only 2% of their turnover in tax, how do they do that?”, and 30 seconds later, when I explain that (a) tax is on profit not turnover and (b) tax you pay outside the UK is still tax, they starting complaining about journalists who distort the position to get a headline.
At that point the conversation might come back to me saying that the journalists do have a point, even if they over-egg it heavily; or someone might bring up something else that they think is represented unfairly in the press (especially the local paper); or it might go on to something completely different. I’ve only had one person, I think, actively disagree; and she eventually agreed that the picture she’d got from the mainstream media was rather misleading.
Anecdote, of course, not data. But the only “data” I have on public opinion comes from the same journalists who think that paying less than 28% of your turnover in corporation tax is wrong, so I think my doubts about its provenance are understandable.
Respectfully – I know there is no tax avoidance in your opinion
You’re wrong
And I’m bored by giving you space for the errant nonsense you want to write
Pellinor look at economic reality versus tax fantasy!
The problem with profit-based taxes is that the profit is shifted elsewhere – indeed that it the whole game that is perfectly ‘legal’. Vodafone has been doing this and we should ask the question of whether they would have become such a large global operator if they had not employed such approaches.
It is scandalous that Amazon (and probably others) don’t reveal their UK turnover. We should in some way be able to estimate the turnover of these multinationals, even by tracking funds via banks which would require legislation. For many industries, VAT could be used as a proxy (not health care of course).
So don’t we need some sort of witholding corporation tax paid on a monthly basis based on turnover imposed on any (large) company trading within the UK? This could be set against the full corporation tax payable, and any special allowances (eg R&D) could be set against it in the first place.
This would (a) catch those trading offshore and (b) bring forwards a considerable chunk of tax by a year.
Such an approach would also make a level playing field for UK-only operators, as has been a complaint for some time, particularly against Amazon sell everything these days. Eventually of course the target must be to lower corporation tax to 10% at most – Bulgaria has this rate – and then the tax avoidance would not be so profitable.
It does seem that you are right – there is a conspiracy (a) to let big companies get away with things that many other countries, even the US, don’t allow and (b) to use this as an excuse to dismantle the welfare state, NHS, education, libraries etc etc.
Lowering the tax rate to 10% would be counterproductive, as you’d halve the CT coming in. The idea is not to reduce the absolute size of the number in the “tax avoided” box in a report, it’s to try to make sure that the law laws fit the economic situation properly to narrow that “avoidance”band, so things are more clearly acceptable or not. Certainty is what we need.
There is no such thing as certainty
It is a deliberate red herring because it is known not to be possible
No, you can never have absolute certainty, but you can get closer to it. You can definitely have more or less uncertainty.
The problem is, of course, that in the absence of certainty it’s hard for comapnies to be sure they’ve complied with their obligations. It’s that whole “reasonable care” thing that comes in to penalty rules, for example, so HMRC will accept that making a mistake doesn’t mean you were careless.
Taxpayers should have some slack cut for them, but the clearer you make the rules the less leeway you need to give, so the less scope there is for abusing it.