UPDATE FEBRUARY 2014: See the new Fair Tax Mark here
This blog refers to the pilot version
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Over the last six months I've been working with Meesha Nehru on the Fair Tax Mark, which we launched this morning. It's got its own website here.
The first Fair Tax Mark report ranks 25 UK retailers on their tax and transparency - the latter being more important than the rate paid. As the ranking shows, one company - Greggs - got full marks whilst Majestic Wines came close. Others missed the mark by a long way, so it's important to note what we rank on, which, as the Mirror notes this morning, is three separate measures:
- Do companies publish enough information so we can tell how much activity they have in the UK, what profit they make here and how much tax they pay in this country?
- Does the company pay an acceptable rate of tax on its profits, and does it look likely that a fair part of that profit is declared in the UK?
- Does the company use tax havens, indicating whether or not it is likely to be involved in tax avoidance.
There are five points available for each measure and firms getting 12 or more out of 15 are awarded a Fair Tax Mark.
As we found, there are widely varying results:
- 9 of the 25 companies scored 0 for their country-by-country reporting — meaning we could not get sufficient data on their UK activities to assess whether they paid fair tax.
- 6 companies scored 0 for their tax rate — meaning they paid low rates of tax on average over six years and we could not tell whether they paid it on appropriate UK profits.
- Only two companies scored 0 for tax haven use — meaning they did not provide enough information to tell whether they used them or not.
- Only 3 companies scored a maximum 5 points on tax haven usage — meaning they did not use tax havens (Greggs, Majestic Wine and Asos — the online fashion retailer).
What was also interesting was interpreting the results:
- As the size of a company increased its Fair Tax Mark fell, on average
- As companies got bigger their use of tax havens increased, on average
- As companies got bigger their tax rates fell on average, suggesting that bigger companies are working the tax system to their advantage
- Country-by-country reporting data got worse as companies got bigger.
As my colleague, Meesha Nehru, told the press:
People are increasingly expecting companies to pay the tax that society demands of them or to at least explain why not.
They're not paying, and they're not explaining and neither are acceptable — and that's the message of this report and the Fair Tax Campaign which believes that fair tax is at the heart of a good society.
We haven't got that society right now, and that's why people want Fair Taxes back.
This Mark is intended to help people assess who is, and is not, telling us what we need to know to assess whether there's a fair tax system in place - and that, we think, is an important step in taking this debate forward.
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Great idea – I wonder why our government, which is so enthusiastic in condemning tax avoidance, hasn’t thought of this? Surely there must be a few bright minds left in management at HMRC after their brilliant ‘naming and shaming’ malarkey (I think I know the answer already..)
Well HMRC ought to be doing something along these lines! Isn’t that effectively what the PAC review is saying – that HMRC haven’t done a good enough job on Google et al.
The problem of course as I see it is re no. 2:
“Does the company pay an acceptable rate of tax on its profits, and does it look likely that a fair part of that profit is declared in the UK?”
It’s easy to see what effective rate of tax a company is paying globally but trying to asses if a ‘fair’ portion is attributed to the UK is difficult and is inherently a subjective call. But that aside, doing this type of analysis is what HMRC should be doing and challenging companies about attributionof profits. To be fair I think they already do that to some extent but maybe they’re not doing enough.
It’s not clear to me how Fair Tax do consider whether a company is declaring a ‘fair’ part of profit in the UK – Do you have any insight on that Richard? I’m guessing a unitary tax style apportionment?
This is how it’s done http://www.fairtaxmark.net/wp-content/uploads/2013/05/Final-Methodology1.pdf
Hope that explains – but please come back for more if needed
Does anuone see the irony in Justin King (sainsbury chief exec) callng for a level playing field with Amazon and his co being at thebottom of Richard’s table?
Yes
This is brilliant Richard! An excellent place, where the information is together, simply broken down and everyone can refer to it. Just what is needed. Thank you. Can I make a suggestion? Since many of the general public do not realise that a company familiar to them is actually owned by another company, is it possible to add a couple of names of the famous subsidiaries of a corporate? Or maybe that’s the job of journalists. I don’t want to make you more work 🙂
Very sorry I’ve just realized you do do that. Apologies. This is great! 🙂
I know you won’t have the nerve to post this, but if your Fair Tax Mark methodology is applied to Stemcor (and I have) they would score very badly. They have poor scores under all the dimensions you identify.
Does this mean the methodology is not always accurate?
If true that’s the right score
Rather like John Lewis did not do well
This is embarrassing! The principle is fine but the quality of the research and metrics is laughable!!
Morrions getting a low score in country by country reporting because they have stores in Jersey and Guernsey!!! You really think they are avoiding tax? Just look at there statutory accounts, they could not be anymore plain vanilla and conservative. They should be the benchmark!
One day you will get sued for this! If you really believe in this Fair Tax Mark you will post this comment and challenge me, if it is not posted then i know your thoughts.
To back up your research why dont you publish Stemcor’s score to prove to all your neo-liberal doubters that you were right and not just defending the company because of your friend M. Hodge!
You make assumptions
We wanted facts
And you will note from the data they have tax haven subsidiaries in many more places than Jersey and Guernsey and provide no geographic break down of trading – explaining their low score – which in is case appears wholly justified as the audited accounts do not provide the information we needed
The names of the offshore subsidiaries does not suggest they are running stores
And that was the point we’re making
Morrisons were in a minority of companies who did not respond to the data when sent to them for comment
We published a response from all who permitted us to do so
My suspicion is you have simply not read the methodology
Richard
It is quite clear that you are the one making assumptions, if you are saying you can ascertain the purpose of a corporate from what the name sounds like. So here are some facts I have found from about 1 hour of research.
Morrisons has 2 subsidiaries in Gibraltar – because it operates a supermarket there, the only supermarket on the peninsula. It also holds a pharmacy license for Gibraltar in a separate company as it is required to do by law. A quick look at the accounts of these two subs might tell you this. They have a vegetable packing plant in Holland. They have a purchasing office in Hong Kong to access Chinese suppliers. They have a captive inaurance company in IoM.
These are all there for bona fide commercial purposes and confer no,tax advantage whatsoever.
They do not have to respond to you or anyone else – except the tax authorities.
You do yourself no favours by publishing mistruths based on thin research. Your aims are noble, but your methods are not.
Respectfully, there is no mistruth in what we have published – at all.
The audited accounts do not tell us the above
The annual return does not
Captive insurance is tax haven activity with tax and regulatory abuse advantages
A buying company in Hong Kong provides ample opportunity for internal profit shifting of exactly the sort the OECD is looking at
And Morrisons do not provide geographic data so their scores were exactly justified on the methodology we published
Morrisons has subsidiaries on which we can get no financial data in any easily accessible way – which is exactly the point we are making
That data is needed
It is your claims that are, I think, quite wrong. You have no way of knowing whether tax advantages are obtained by these activities or not – and that is exactly the point we are correctly making
I welcome this and I am grateful to those who are doing it. It seems to me that those who suggest HMRC should do it are not really thinking it through, HMRC cannot really publish such a mark as their remit is not to put pressure on companies to be more open about their activities in general: their remit is to try to assess and collect the correct amount of tax in the UK. To that end they can ask questions of the company but they cannot disclose what those questions might be nor the answers: they are a public body and there are strict confidentiality rules. You might think they should not be as they are (I certainly thought so when Mr Hartnett told the PAC he could not answer their questions because of confidentiality) but they are there and they mean that HMRC is not free to undertake this kind of thing: so it is great that someone else will
As to being sued? For what, exactly? For being identified as a company which does not disclose enough information to allow anyone to judge whether they pay the right amount of tax, in the right place, at the right time? That is either a fact or it is not. If it is not they can certainly demonstrate the error and have the award where it is merited. I hope it will become a desirable endorsement they would all like to have.
Meantime I see no particular reason to assume that all is well if the information to confirm that is not available. Government and courts have to make such assumptions, given where the burden of proof lies. We do not. It is long past time for giving companies the “benefit of the doubt”, as customers. They have relied on that too long and it is perfectly obvious that some have exploited it.
Fantastic!! Well done! I’m assuming you will expand over time, the number of companies involved??
Depending on funding
Know anyone who wants to pay for it?
Interesting data, but the final scores you give don’t seem to stack up very well to the data or the commentary.
I’m considering buying a composter, so I went to have a look at the B&Q (Kingfisher) report.
They get a 1 for country-by-country reporting, even though the report says they do a fair bit of it. They do more than the minimum of reporting, yet they get the minimum score. That seems harsh.
They only get a 4 for tax rate, even though the report says they pay above the expected rate. The reason seems to be that margins are higher in France and Poland than in the UK, which suggests profit shifting, but the French tax rate is far higher than the UK one, so if they are profit shifting there it’s not to save tax.
They get a 2 for tax haven use because they have subsidiaries in Hong Kong, Ireland and the Channel Islands. So, a group that buys stuff in China and sells it across the British Isles has subsidiaries in, er, China and the British Isles. Why should we assume this is to avoid tax? You’d have companies there if you were running the show, so why complain that they do?
The scores just seem to be a bit arbitrary. Maybe it’s just this report, I haven’t looked at all of them.
You miss the point
You are assuming things
We don’t
We are asking for data
They don’t give it
We don’t give a score
If we had data they would get a score
It’s really quite simple
And the CBC score was not the minimum – that is zero
The assumptions are inherent in your methodoology. You assume that everything is bad unless you have concrete proof that it’s kosher, rather than trying to find out whether there is any mischief.
The difference between a 2 and a 5 for tax havens, for example, is that for a 5 you need to understand exactly what every company in the group does, and for a 2 there need only be one company about which you are not completely satisfied. For a 1, there need only be some suspicion in your mind that a list is incomplete and there’s another company you don’t know about.
We have tried to find out – from audited group data or companies house returns
Everything else is PR
We are seeking assurance – and are not finding it
So, to be clear, they score poorly because they didn’t anticipate and answer your detailed questions in their accounts before you asked them? (For example, the reason for their margin in France vs the UK and potentially a ton of other stuff). Perhaps they also score zero on a clairvoyant test.
Not at all
The option of disclosure exists for all companies
They haven’t chosen to do it
It’s up to them if they want to change in the future
But remember – like it or not the EU is headed in this direction
This is a debate I will win
Greggs? GREGGS??!!!
The company that led the protest against having to charge VAT on hot takeaway food, just as they were supposed to have been doing for the past thirty years or so? Hiding behind a case (Pembertons) which has recently been shown by the Subway case to have been wrongly decided all along?
If you have not realised we are assessing tax disclosure and corporation tax in this study then you clearly have lost your powers of investigative journalism
You are referring to VAT
Please tell me where we said we were rating that?
I’ve always known you’re good at fighting straw men and mud slinging Mike – but to criticise for something we have not said we’re doing – and explicitly exclude form consideration takes you to new depths of failed analysis
It’s another flaw in your process: you’re looking only at CT, but by calling it a “Fair Tax Mark” you suggest that it encompasses all taxes.
I was surprised when I found that it was only CT. I know you say you’re not counting VAT because the company doesn’t bear the cost of VAT, but that is of course not entirely true – as Mike suggests.
The only tax a company pays on its profit is CT
And it’s the only unambiguous tax where the incidence is on capital with no distinct related service supplied
The public are unambiguously not confused
Odd how pedants are
Only if the business can fully recover VAT. Banks for example bear the cost of VAT through their P&L as do many other partially exempt businesses. VAT is a real cost to their business.
Very few retailers can’t
That will teach me to look the case name up before typing. Please edit to Pimblett…
From a pure review of the accounts and avoiding jumping to any assumptions that easily explain discrepancies the Tax Research LLP and Tax Justice Network Limited accounts don’t score high enough to get a Fair Tax Mark either.
Why?
TR LLP only trades in the UK
Ergo TJN
Neither have tax haven subsidiaries
TR LLP tax is paid by me – so the methodology does not apply (which is why we will develop a separate test for small companies and others in due course)
As far as I know TJN pays a full rate of tax on all its taxable income
I think both would qualify
Tell me why not?
Surely TR LLP tax is paid by all the partners, not just yourself? I haven’t looked at your accounts, but you can’t normally have an LLP with only one member.
Unless of course all the profit is allocated to you, but that would be a very odd way to run a partnership.
Well OK – me and the 1% partner
Ah, but that’s a lot of assertions not actually disclosed in the accounts just like we are not allowed to make the assumption that B&Q’s margins in France can’t be tax avoidance because the French tax rate is higher than the UK or Morrisons operations in Gibraltar are genuine supermarkets or we can’t assume that their captive is subject to a CFC apportionment so there may not be any tax advantage. . Equally we can’t simply assume TJN pays small companies rate and there’s no explicit statement in the accounts that you don’t have tax havens or don’t have, say, overseas branches in tax havens (some of the turnover appears to have an overseas source). All is no doubt fine (just it will be for a lot of companies on the list). However, you can still get a score that clearly implies you haven’t paid you “fair share” just on the basis of data in the public realm.
Companies House annual return confirms no subsidiaries – which is the double check
And a company paying no tax for fair reasons it can get a fair tax mark
I don’t think we can be fairer than that
Hold on, you have a 1% partner? You have a partner who presumably therefore does nothing significant in the business, or they’d have a significant share in the partnership?
In the absence of any information, one might suspect the only purpose of a 1% partner is to comply with the letter of the LLP rules in order to obtain limited liability for what might otherwise be an unlimited sole trader.
Which could easily be seen as abuse of the LLP rules…
How do you know she does nothing significant in the business?
Every key decision is shared and discussed with her
No contract is taken without her knowledge and consent
Campaigns only begin after long debate with her
The approach on many key issues is the result of hours of debate
And she shares the risk
You can argue she’s underpaid (but she’s a higher rate taxpayer – so there’s no hint of rate shifting) but you can’t argue she does nothing
That’s just another of your gross assumptions that as usual is without foundation
I think the biggest problem here is calling it a fair tax mark when it’s largely a tax transparency mark (if that). The name clearly carries the implication that a low score means a business is not paying its fair share when in effect it hasn’t adequately described the position to your satisfaction. So taking an analogy, it’s like having a healthy eating label and failing a salad for not saying there’s lettuce in it but giving a hamburger the thumbs up for saying it doesn’t have much sugar in it and listing the ingredients of the bread.
Do you have any awareness of the current debates on tax?
I see you have adopted your usual tactice of attacking the person rather than dealing with the point. Perhaps if I don’t understand it doesn’t that prove the point that perhaps many others will be confused by what this mark represents?
I note the ICAEW completely got it and think it will help
Very obviously real people do get it
M
On John Lewis, what’s the rationale for not adjusting for the 2009 profit on the sale of an associate. This is a tax free disposal under the intention and letter of the law. That effectively means tax compliance (claiming SSE relief) has the same weighting as aggressive tax avoidance when assessing the tax gap in your methodology which seems very harsh/unfair.
We averaged over six years to allow for such aberrations
And since we cannot be sure how much the saving due to that was in most cases – how should we adjust?
It’s hardly an aberration.
If you can’t adjust for it, maybe you could at least disclose the existence of it in your report? That way readers can take it into account, even if the numbers aren’t precise.
It also seems a bit disproportionate, looking at the John Lewis report, to give them nil for country-by-country when they have almost no presence outside the UK. Not reporting the results of a couple of shops out of over 300 isn’t that big an issue, surely?
No I could not disclose – or judgement on when or not to do so would become far too subjective
It is for the company to disclose
It’s easy to adjust for isn’t it? Take the £127m disclosed profit on the sale of the associate from the total profit before tax figure (to give profits absent the one off tax free sale) and then recalculate the effective rate based on this reduced profit figure. It doesn’t seem that hard and it gives you a fairer picture of what’s going on.
It also largely explains a large part of the “tax gap” you have identified.
But that misses the point – tax was not paid – and maybe tax law needs to be changed if we are to have a fair tax system
Remember – this is a Fair Tax campaign
So fair tax means ignoring several hundred pages of tax legislation and simply taxing profits of UK companies on the basis of profits in the accounts times the headline tax rate?
Fair tax requires progressive tax
And if exemptions and allowances prevent that and shift the burden then that deserves highlighting, yes
Why not?
How do you think change happens?
If the tax code does not reflect the ethos of the time then it has to change. A campaign seeks to create the climate for that change
Ok. So I think it would be fairer for LLP’s with 99% and 1% members to be taxed as a corporate and their members to be employees. That means Tax Research LLP scores a zero on the tax rate doesn’t it?
ave you asked PWC whether they’d agree with that?
and wouldn’t it actually be much better to make all limit companies LLPs so no shelter from income tax was available ?
Isn’t that much more logical – as NIC would also be paid
PWC aren’t a partnership of two partners. There’s more overall tax and NI if a corporate and the profits are paid out (whether dividend or salary) compared with a partnership. That’s a more comparable situation as all the cash is in the hands of the stakeholders at that stage. Just need an avoidance measure to prevent deferral in the company.
So you are arguing there is no concept of profit in small business?
Wouldn’t you really agree what is needed is a total reform of small business tax – something I suggested in 2007 and which no one has had the courage to take up?
Never mind the whole “operating in tax havens” thing – selling groceries is hardly mainstream tax avoidance.
It just makes the whole exercise look as if you haven’t really thought about it.
Captive insurance is not selling groceries
Would you like to stop making what are very obviously false claims?
No, it’s a way of self-insuring without having to go through the hoops designed to protect consumers, which are of course useless in a self-insurance situation.
Not everything in this world is about tax, you know.
No – it’s not
There’s regulatory abuse too
And sometimes they go hand in hand
And tax havens do both
Any profits in the IoM captive are fully taxed in the UK (with credit given fir any taxes already paid on hose profits to the iom govt). And IPT is paid on the premia paid by the UK parent to the captive. How in he name of god dies that constitute tax avoidance?
How do you now that?
In that case disclose it
And file the accounts here too then
I note you took issue with Mike Truman earlier, pointing out that the Fair Tax measure was only to do with CT, not overall tax compliance.
Is it not then a little anomalous for the Fair Tax blog to publish a very supportive letter from someone in the North East, which praised Greggs for “doing the right things on tax.” Should the blog not have draw attention to the fact that the Mark was only on CT, even that Greggs had actively campaigned against the VAT changes to promote its own interests, and not commented “Thanks Paul! Thanks Greggs!”
Only companies pay corporation tax
The only tax they declare is corporation tax
The public is not confused
Journalists aren’t confused
Why are you?
Richard if you believe I’m confused then I’m afraid you’ve confused yourself. I cannot see where I denied that companies paid corporation tax. I cannot where I suggested journalists were confused. I might argue that on a strict basis companies actually make declarations around all the taxes they administer but I think you mean declare and pay over out of taxable profits.
I quoted a member of the public praising Greggs for doing the right thing on tax. Even on a very strict reading I do not see the letter says corporation tax. So I asked if it was anomalous to ignore the pasty campaign. From your answer I assume you do not agree, a view which you are perfectly entitled to take. So why not just say so and avoid all the the talk of confusion?
I think what we are saying is clear
I have nothing to add
Two points.
1) UK company accounts are publicly available, and include tax notes which set out how the company’s corporate tax due reconciles to the stautory rate.
Therefore, information is available. These tax notes are not simple to follow, as the tax system is not simple. Please stop trying to make out it is.
2) Higher retained profits in listed companies means more people can be employed and greater shareholder value, which means better valued pension funds. If a company uses legal tax planning to achieve this, what is society losing out on exactly?
Tax information is not available on a country by country basis
Tax in formation is not available on tax havens
Companies are not paying the expected tax rate and are not adequatewly explaining why – as the Big 4 now agree
Those are all facts. We are not claiming anything else
There is no evidence that higher retained profits mean more people are employed. Profits have risen over the ast few years and unemployment has risen. Your case does not stack: it is a dogmatic claim
I am sorry, but I deal in facts