The FT has reported that:
UK property companies are seeking changes to the proposed implementation of a global agreement to fight tax avoidance that is set to add £660m to their annual tax bill.
Private equity and infrastructure companies are also among those groups facing additional payments under OECD rules on base erosion and profit shifting (Beps), which place limits on the tax deductibility of debt.
So, they're upset that the rentier sector will pay more tax, as will private equity funds, many of which pursue business activities that strip rather than add value. And they say that this is unacceptable.
First, I would argue that neither of these sectors need these state subsidies for their cost of capital: if they cannot survive without this level of state support they should question why they are in business.
Second, if their business models are so tax dependent then it is quite reasonable to ask if tax avoidance is involved.
Third, in that case it is fair to ask whether capital might be better used elsewhere without these subsidies, in which case the tax reform may be wholly beneficial.
And fourth, we should celebrate a lowering of leverage: businesses with lower leverage tend to be more durable.
If there is an unintended consequence of BEPS here it would seem to be wholly beneficial. Bring it on, I say.
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I agree. Some countries – eg Germany and Denmark immediately come to mind -have for many years had rules limiting companies’ interest deductions to a % of their taxable profits earned. The last time I looked, their economies seemed to be doing okay.
As I understand it, there are pending cases in the German courts, challenging the compatibility of their interest barrier rule with the German constitution. In particular, preventing a taxpayer claiming a deduction for more than 30% of EBITDA can mean that they are left with insufficient means to pay the tax (restricting tax deductions does not mean the lender is not paid, just that the taxpayer is taxed on more than its actual net income; in some cases, more tax to pay than the economic profit) and leading to a lack of equal treatment between taxpayers with equivalent means to pay.
So?
I can overspend my personal income and have no means to pay my tax
Why is that an issue?
Talking of stripping value from society rather than adding to it, here is yet another example of how the private utility companies are neither competitive nor in any way acting in a free market. It would appear they are acting as a cartel to maintain high prices despite falling wholesale costs.
No doubt they also benefit from plenty of tax allowances for the privilege of ripping off the British public.
http://www.bbc.co.uk/news/business-35321723
It may be difficult to penetrate the UK accounts of RWE, EON, EdF and the other foreign players that are a feature of the Uk power sector. It is thus difficult to know if they have loaded the Uk operations with debt. What is known is:
a) for each tonne of coal (cost £33) burnt, UK coal stations make around £107 (from selling the elec). RWE, EON etc claim they are losing money on this side of the business. Fact: the UK has the higherst elec’ wholesale prices in Europe.
(proof: the mainland Europe – UK interconnectors 98% of the time work in one direction – mainland to UK).
b) the UK has the highest energy only retail prices in Europe at around (Eurostat data) 11.07p/kWh. Uk retailers (EON, RWE, EdF etc) claim they are losing money on their retail operations (conclusions: they operate in the Uk for charitable reasons?).
Given the small difference in wholesale – retail it is posisble that the profit is being stripped out of the generation side through interest “operations” – using the services of the gnomes of Luxy.
Margins o generation are ten times higher than on supply in the UK on average
By and large these are vertically integrated businesses
That makes no sense
Privatising the public utilities has been in my opinion the 21st century equivalent of the enclosure of the commons.
These classic 17th century poems still stand out for their poignant truths
The law locks up the man or woman
Who steals the goose from off the common
But leaves the greater villain loose
Who steals the common from off the goose.
The law demands that we atone
When we take things we do not own
But leaves the lords and ladies fine
Who take things that are yours and mine.