I was invited by the Fabians to contribute a chapter on the governance of HMRC for their new book on tax:
You can download it for free here.
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You say in your chapter:
“…in 2015 the UK corporation tax yield (excluding North Sea revenues) will be £8bn less than forecast in 2010. Part of this may be down to growth not meeting expectations, but at least £4bn may be due to tax rate reduction, as forthcoming report for the TUC will demonstrate. Meanwhile, it is easy to allocate the rest of the shortfall to specific reliefs and allowances given”
So you seem to have completely explained the £8bn movement by reference to matters which are not part of the tax gap.
You also say:
“This is the consequence of the new ‘corporation tax policy gap’, which might be as high as £8bn a year. This new tax gap represents the gain that large companies
have made since 2008 as a result of the extensive changes in UK tax policy that they have secured.”
So, to be clear, you are saying that this £8bn not being collected (apart from any element relating to lack of growth) is the direct result of the express will of Parliament.
HMRC define the tax gap as “the difference between the amount of tax that should, in theory, be collected by HMRC, against what is actually collected.”
“The amount of tax that should, in theory, be collected” is normally interpreted as meaning the amount that would be raised is everyone followed the rules as set out by Parliament.
However, by including this £8bn in the tax gap, you are saying that “the amount of tax that should be collected” is not the amount that Parliament would like to collect (as they have, by your own admission, not sought to collect it), but is in fact some other figure.
Can you explain what that other figure is based on? And why it should be preferred to the amount Parliament has set out to collect?
Andrew
I hate to say this, but I come to the conclusion that you are either utterly incapable of reading things in context or are really a vexatious time waster
I used to think the latter
Now I am inclined to inability
My meaning is totally clear in the article I wrote but you are deliberately mis-stating it
I cannot waste more time engaging with you
I will delete your comments from now on
Richard
Richard
In your chapter, you state that:
“whilst UK multinational groups were once taxed,
at least in theory, on their worldwide income, they are now
only taxed in the UK on the income they have arising in this
country. This is in direct contrast, for example, to the vast
majority of individual UK citizens, who are still taxed on
everything they earn”
In order to be taxed on world-wide income, an individual would have to be UK tax resident. If you are drawing a ‘direct contrast’ then this would have to be with a UK tax resident company. A UK tax resident company is taxed on world-wide income, as is clearly stated on HMRC’s website
“If your company is based in the UK, it pays Corporation Tax on all its profits from the UK and abroad”
This is of course subject to tax-treaty considerations but if a UK company has profits arising abroad and has no ‘permanent establishment’ abroad then the profits are taxable in the UK.
You confuse what I mean by a company
I mean a group – as in business thinking it is
Groups were taxed on worldwide income
Now they are not
Richard
UK owned groups of companies have never routinely been taxed on world-wide income, although there were anti-avoidance provisions to prevent abuse of this fact. But those anti-avoidance provisions would never have applied to genuine overseas subsidiaries.
A trading company here in the UK which had a genuine trading subsidiary in (say) America would never have had the profits of that US subsidiary taxed in the UK. Certainly not in my lifetime in HMRC, which dates back to 1978.
But on a wider point, if you are arguing that UK owned multinationals should be taxed in the UK, are you accepting that US owned multinationals should be taxed in the US and so on?
Karl
That is nonsense and you know it
Until 2009 dividends from overseas subsidiaries were taxed here to achieve that goal
You are just wrong at a broad level
As you are also wrong to draw the inference you do in final para
I actually argue all states have a right to source first, including withholding and that source should be determined on a unitary basis and that parent companies should be taxed on residence basis on worldwide income
“Until 2009 dividends from overseas subsidiaries were taxed here to achieve that goal”
Well, firstly you assume that a dividend has been paid. And if a dividend has been paid any tax would be a tax on income received by the UK company, not a tax on profits made by the overseas company. That this is the case is easily demonstrated. If no dividend is paid, no tax could be due. If a dividend of half the profits made in that year was paid then tax due would be limited by that. If a dividend was paid that exceeded profits for that year, tax would be due on that, not on the profits. It was never a tax on overseas profits, just a tax on those profits distributed back to the UK.
And in any case, such tax was subject to a tax credit for underlying tax paid, this being the foreign tax paid on profits out of which the dividend was paid. It was also subject to a tax credit on any withholding tax.
It seems to me that you are trying to give the impression that huge amounts of tax that we used to get from overseas profits of multi-nationals has somehow been abandoned. That just isn’t the case. Having poured over countless underlying tax computations in the past, I know this to be the case.
We need a debate on tax, it is just that it is better served by dealing with realities, not fantasies.
Karl
I find you exceptionally disingenuous
If this was such a non-issue why were countless hours spent lobbying for the change and why has business made such a big deal of achieving it?
I deal in realities
Tax comps are decidedly extracted views of that after the planning has taken place
Richard
Richard
Why do you keep on posting comments from people like Karl if they are just going to show up your ignorance on certain tax measures?
Surely it’s much better for a productive forum if you only publish the opinions of those who agree with you?
Neil.
I disagree with you