For a long time most people have associated tax avoidance with big multinational companies.
George Osborne took some welcome steps to tackle them today: I must give credit where it is due. UK companies taken over by foreign owners who then pile then up with debt to cancel their profits will see that game brought to an end. Think Boots. Think Manchester United. Think the AA.
And companies who try to shift profits to tax havens by relocating the ownership of patents and copyrights to such places, for which they then pay a royalty, will have to pay UK tax out of the payment made. That effectively brings this income back onshore. Think any large multinational doing R&D.
There are also very welcome measures to hit offshore property developers.
But please don't think it is all good news. If George Osborne was really serious about tackling offshore today he would have announced public country-by-country reporting, and he didn't so we still don't know who really needs to be brought to account.
But worse, he opened up massive new tax avoidance opprtunities within the UK. The bigger the difference between income tax rates and corporation tax rates the bigger is the incentive, and the greater is the saving, from running a business through a limited company. Up and down the country accountants will be selling this, literally right now.
And the cuts in capital gains tax will be also be sending those same advisers into fever pitched excitement as they work out how to turn income into gains to save up to 25% tax for some clients.
Don't be fooled: this was a great day for the tax avoidance industry, but just not the bit we're used to looking at.
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Parliament gets to vote on this soon, and if passed then it won’t be avoidance. Will of Parliament and all that.
So a new term will be needed to make discussion meaningful.
Oh hang on….
Lots of things called avoidance today weren’t according to HMRC
There is avoidance and there is HMRC babble
That’s the real problem
…Sherrif of Nottingham Tax Benefit.
Sherrif Benefit for short:-)
All the royalty change really means is everyone will use Luxembourg for their ip location rather than Cayman or the Channel Islands so it will make zero difference to the tax take
Far more significant is the interest cap and loss restrictions which will raise a lot of money I think
Totally agree turning income into capital is now the biggest game in town
There is a look through provision
That should be interesting
surely a look through provision is anti-eu and therefore illegal?
I have expressed that concern in meetings today
Don’t believe the publicity. The published royalty anti-avoidance legislation does not depend on where the licensor is, and the other two (extending scope to other sorts of IP, and withholding on royalties connected with a permanent establishment in the UK) won’t either.
If you believe the Red Book, pages 84 to 86, the interest cap should bring in about £1bn per year, the restrictions on using carried forward losses about £600m, hybrids about £200m, and the royalty changes about £100m. The SDLT hike for commercial property over about £1m (and rents with an NPV over £5m) get about £500m pa. The 17% rate of corporation tax costs about £1bn, and business rates changes about £1.5bn.
Indeed
Have a look at this thoughtful post from Professor Paul Spicker – a highly regarded and well published welfare ‘guru’.
http://wp.me/p6x0MC-1bL
Do Osbourne & Co really know or care about what they are doing? And what does it tell you about people’s attitudes to tax?
My late father ( a trade unionist) used tell me that more people needed to be put into the tax system to make social security work – never mind taking people out through higher tax -free earnings limits, going light on avoidance and evasion and cutting taxes for those who use the common good to make money.
I agree with your late Dad PSR
Do you really think Osborne will “crack down” on tax avoiders when he is one himself. When he lowered the top rate of Income tax to 45% he was interviewed and asked if he, personally, gained from this change. His reply was “No, I don’t earn enough”. Now, the top rate starts at £150k and his salary is £135k. However, he gets a free house at No11 with all bills paid and a car with chauffeur. We would be taxed on thes “Benefits i Kind” – is he? The free house enables him to rent out his £4m house in Notting Hill. In addition, he has a £10m trust fund. He also has a substantial shareholding in the family firm. Osborne & Little Ltd. which seems to have quite a turnover, but for the last 7 years hasn’t made a profit. However, the family Directors seem to vote for a pay increase each year which seems to wipe out any profits. With such a Cancellor, who also boasted on TV before the 2010 election that he knew how to avoid Inheritance Tax, what hope is there of stopping the tax cheats?
It is possible he does not have an income of £150k
Possible
Don’t forget Dorneywood too. But I think the normal income tax charge for living accommodation would be excluded by the need for security arrangements (see s.100 ITEPA).
And I suspect ministerial cars are pooled and so excluded by s.167 ITEPA.
If Osborne & Little are extracting company profits as directors salaries, they are getting a corporation tax deduction at 20% on the employment costs, and paying income tax at 20, 40 or 45% plus NICs. Hardly creative tax avoidance. To the extent that they make losses, they are not even getting value for the additional deductions in the company.
As Richard says, without country by country reporting, the scope for global businesses to continue tax dodging is surely just as big as ever. Without transparency and democratic accountability an ‘legislation’ means nothing. We know that this regime want the UK, via The City, to become a tax haven in its own right. I would imagine when it’s easy to legitimately avoid tax via the specific laws of the land, the fewer ways you need to provide people to get around those laws…
How does this legislation work in reverse, for example if Starbucks move their base to the UK and profits from other EU countries are transferred to the UK via transfer pricing – ‘royalties’? In tax haven UK, will those transferred profits still be counted as overseas profits and not taxed? Is there scope for companies to set up shell companies in the UK which could ‘loan’ money to overseas operations to manufacture debt, and the repayments made to the UK shell company without being fully taxed?
The UK does not tax overseas profits….
The UK certainly does tax royalties and interest received by UK companies from overseas affiliates.
Not if paid here as dividends
So more scope for UK to become a tax haven then…