Tax transparency is, in the case of companies, all about being accountable for the tax due by the company.
The trouble is that the vast majority of UK based companies are not accounting for the tax that they pay for a number of reasons.
In many cases that is because they file abbreviated accounts. These are, of course, legal for small companies but they mean that no profit and loss account information, at all, is published by the companies making use of this form of reporting. Given that detailed disclosure of liabilities is also not required by them the chance that any disclosure of any sort with regard to corporation tax is made by these companies is very limited indeed.
Curiously they are a long way from being alone in this regard. Some branches of foreign companies need file no accounts in the UK, and far too many of such companies that may only trade here e.g. by renting land and buildings but are not required to file accounts with Companies House. They too fail to provide any information on the tax they pay.
But this is not the only tax opacity in company accounts. Look at the accounts of any UK parent company with a parent elsewhere in the EU (and, sometimes, elsewhere) and they do not need to file a cash flow statement, meaning that critical data on tax paid is not provided by these companies.
Multinationals do provide data on tax paid, but in far too many cases it is meaningless. Tax is, inevitably and only paid locally, but in most multinational corporation accounts there is little indication as to where profits are made, let alone where tax is being accrued or paid.
Then result is that in the vast majority of the published accounts of companies working in the UK there is very little, and in far too many cases, no information at all on the tax due and paid in this country. This is an absurd situation. When tax payable on profits is, in my opinion, the necessary price payable for the privilege of limited liability the fact that in most of the accounts we have no clue as to what UK profits are, let alone the resulting tax due, shows a fundamental failing in the accounting requirements demanded of our companies.
The solution, in all cases, is that as a minimum, every single company trading in the UK (defined as having a permanent establishment in the UK for tax, trading through a related permanent establishment trading in the UK (to cover Amazon) and managing land, building or other assets from which income is earned in this country) must file as part of their annual accounts a statement that must be published, irrespective of the size of the company stating what the UK turnover of the company is, what its UK profits are, UK current tax liability provided and UK corporation tax paid in the year.
There is no company that does not know this data.
There is no company whose competitive position in the UK is compromised by this since absolutely every single company trading here must file it.
And there is, therefore no reason at all why this should not be required.
If any government, whether Cameron's, which committed to trade, tax and transparency in 2013, or an incoming government in 2015, cannot deliver this then they are not serious about tax transparency. And that is why this has to be on the agenda for UK tax transparency.
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Whilst agreeing that the ideal would be total transparency, this is an interesting area for discussion because trade between companies is usually based on the confidence of the seller to give credit to the purchaser. Credit reference agencies play an important role in this and depend (partly) on the information in the public domain. Will total transparency help or hinder this? Also if incorporated businesses are required to be totally transparent, why not partnerships, LLP’s and sole traders?
How on earth could the work of credit reference agencies be made harder by additional transparency? I am utterly perplexed by the suggestion.
LLPs enjoy limited liability. They must be as transparent as companies.
In the case of sole traders and partnerships there is a recourse to the assets of the owner: this is the reason why reduced transparency is tolerated.
The fact is that increased transparency will always reduce the cost of capital by reducing the risk of those providing it, and as a consequence increased transparency will almost by definition increase growth in an economy.
“LLPs enjoy limited liability. They must be as transparent as companies.”
LLPs, of course, don’t pay tax. Should LLPs be made to reveal profit allocations and tax due and paid on those profit allocations?
That would require publication of personal tax returns
As you are well aware I do not advocate that
If the LLP members are corporations the matter is different
So LLPs need not be as transparent as companies?
Thank you for your comment.
It would appear that you are intent on making repetitive and pedantic nit-picking comments which would appear to have as their primary goal the wasting of my time.
What is abundantly clear is that you are not engaged in any form of meaningful exchange from which any advance in understanding might result.
As such I will not waste my time responding further as to do so would be fruitless when I have considerably better things to do with my time.
“…every single company trading in the UK (defined as having a permanent establishment in the UK for tax, trading through a related permanent establishment trading in the UK (to cover Amazon)…must file as part of their annual accounts a statement that must be published, irrespective of the size of the company stating what the UK turnover of the company is, what its UK profits are, UK current tax liability provided and UK corporation tax paid in the year”
Are you suggesting that a non-UK company with a UK subsidiary will have to file accounts in the UK? Amazon EU S.a.r.L. for example?
With all such companies, whatever their UK turnover and profits, their UK tax liability will be nil if they have no permanent establishment in the UK (quite legally under current tax law).
Presumably you would want this to be reciprocal? Every UK company with overseas subsidiaries will be expected to file accounts in every country they have a subsidiary? All of which will show nil tax due in that country.
How far up the chain would you go? Say UK HoldCo has a UK trading subsidiary which itself has an overseas trading subsidiary. Does UK HoldCo have to file accounts in the overseas territory?
The compliance load for companies would increase hugely and this would require a huge increase in government resources to monitor and police, not to mention a complete re-write of company law around the world to require non-resident companies with no PE to file accounts.
All of which would show that no tax was due.
What I wrote was quite clear.
You have chosen to misinterpret it.
Amazon EU Sarl would be covered but not because it has a subsidiary in the UK.
The fact that this is obvious makes it clear that you are intent on making repetitive and pedantic nit-picking comments which would appear to have as their primary goal the wasting of my time.
What is abundantly clear is that you are not engaged in any form of meaningful exchange from which any advance in understanding might result.
As such I will not waste my time responding further as to do so would be fruitless when I have considerably better things to do with my time.
“…trading through a related permanent establishment trading in the UK (to cover Amazon)”
Richard
I’m just trying to understand what you are suggesting. If Amazon EU would not be caught under your suggested filing requirements by its subsidiary, why would it be caught? Amazon EU does NOT have a permanent establishment but you say it would be caught if trading through a “related permanent establishment”. There is no such concept in current tax law. What is Amazon EU’s ‘related permanent establishment’ in the UK?
You can’t suggest sweeping changes to tax law and then not explain how they would work and what the benefit would be.
My main point remains that these changes would not seem to result in additional tax becoming due so what’s the point in doing them?
Law changes
Amazon EU Sarl clearly has a related permanent establishment in the UK
It trades through it
The object is to find data – in this case, how much Amazon EU Sarl sells in the UK without paying tax
I reckon the parliamentary draftsmen could work with that brief
Why not you?
I am quite sure that the parliamentary draftsman could change the law such that sales in the UK were taxable in the UK with or without a permanent establishment. The corollary would be that UK companies selling overseas with no PE in the overseas country would then be taxed overseas. This would be logistically difficult to achieve and
My simple question was what is the ‘clear’ “related permanent establishment” through which Amazon EU trades in the UK? Not its subsidiaries, you have clarified that. What then? Its warehouses? Currently not considered a PE but yes, of course, you could change every single DTA (and go against the OECD model treaty) and include warehouses as a PE. So then Amazon EU would most likely transfer ownership of the warehouses to Amazon UK. Then what? If not warehouses, then what changes in the law are you advocating?
I am not trying to be difficult. I have no political agenda, I am just a career tax professional. I have spent 27 years (10 in HMIT – as it was) purely working in tax. What you call ‘nit-picking’ is the knowledge that a badly drafted or ill thought-out law is a waste of time.
There are areas of tax campaigning where you have just cause. I think you weaken your case in those areas when you suggest changes in other areas that are unworkable in practice and would result in little, if any, change in the tax yield.
Thank you for your comment, but candidly I do not believe a word you say as to your motives. What I have written is clear and the subject of widespread discussion to which many, most especially in the tax professions, raise precisely the sort of objection that you do.
It would appear that you are intent on making repetitive and pedantic nit-picking comments which would appear to have as their primary goal the wasting of my time.
What is abundantly clear is that you are not engaged in any form of meaningful exchange from which any advance in understanding might result.
As such I will not waste my time responding further as to do so would be fruitless when I have considerably better things to do with my time.
In other words, you can’t say what Amazon’s ‘clear’ “related permanent establishment” is.
Print this or not, I don’t care but you asked the question elsewhere as to why HMRC don’t invite you for discussions on tax. Your response to my attempt to get you to clarify what you mean is a pretty clear example of why HMRC consider it would be a waste of their time.
It is Amazon UK
Isn’t that glaringly obvious?
And why don’t they invite – have you noticed the colour of the government?
But when they were short of expertise they did ask
“It is Amazon UK
Isn’t that glaringly obvious?”
Well, it defeated at least two tax professionals who read this blog, so God knows what a non-tax person made of it. So perhaps you need to be clearer before you use sloppy terms like “related permanent establishment”, a term which as you know is of absolutely no application to UK tax. Or is it your deliberate intention to use vague terms to make it appear that your arguments are simpler/clearer-cut than they actually are.
Do you know that once upon a time the term country-by-country reporting was completely unknown to tax professionals?
And so, come to that, was secrecy jurisdiction?
I have deliberately set out to change the language and understanding of tax. If you don’t want to go on that journey, that’s fine, but you will be left behind because if you wish to define everything in the future on the basis of what you already know then very clearly what you’re actually seeking to do is block all innovation and change. That may be your objective, but it most certainly is not mine and that’s why you are wasting your time here, because it appears that you have not got the faintest idea about what I’m doing, why, and how it works – as it surely does.