I wrote yesterday about the attack by the Institute of Economic Affairs on Oxfam suggesting that the claim that Oxfam were avoiding tax in two ways was completely untrue.
Now the HMRC guidance on the use of Gift Aid by charities who have trading subsidiaries who sell goods as agent on behalf of donors with the resulting funds raised then being subject to a tax releif claim has been drawn to my attention.
Two things follow. First it says HMRC approve of charities having tax free trading subsidiaries and is entirely happy that such arrangements are subject to tax relief and, second, that the whole arrangement that Oxfam uses for Gift Aid has explicit HMRC endorsement.
In that case the suggestion that Oxfam is tax avoiding is absurd. To describe the IEA position as a straw man argument is to be polite to it.
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I’ve read the HMRC guidance and it says
“You can’t claim Gift Aid on:
donations of money from a company”
Is that not the situation here – Oxfam is running retail operations through a separate business and that business is then donating money which is subject to a Gift Aid claim?
Now go and read the rest and stop wasting my time
Warren, in case you haven’t read the rest, which seems highly unlikley, the separate business is not “donating money” under gift aid but convenanting profit to the charity – which is explicitly allowed.
Double negatives make this unclear.
Sorry
“First it says HMRC approve of charities having tax free trading subsidiaries and is entirely happy that such arrangements are subject to tax relief and, second, that the whole arrangement that Oxfam uses for Gift Aid has explicit HMRC endorsement”
But isn’t this the same argument that Amazon uses? That the arrangements they use are within the rules and so have HMRC endorsement? Certainly I have not read any claim from HMRC that the arrangements Amazon uses are illegal.
In their October 2012 publication on the taxation of multi-national businesses HMRC stated
“Non-resident trading companies which do not have a branch in the UK but have UK customers will pay tax…where the company is resident. This is not tax avoidance it is simply the way that corporation tax works”
Amazon has a subsidiary in the UK but a subsidiary is not a branch, not according to HMRC, whose support you invoke above.
Does this mean that Amazon is not a tax avoider either?
No
Please show me the HMRC pamphlet that says you can employ 15,000 people in the UK and record your sales and profit in Luxembourg
Amazon Inc does not employ 15,000 people in the UK. Amazon Sarl does not employ 15,000 people in the UK.
HMRC clearly accept this and are not seeking to tax these two foreign companies in the UK. Two things follow. First it says HMRC approve of UK companies having foreign group companies and is entirely happy that such arrangements mean no tax is due from the overseas entities and, second, that the whole arrangement that Amazon uses has explicit HMRC endorsement.
You know full well that you are dissembling
The law is not defined by pamphlets – get real!
The simple fact is that HMRC has not challenged Amazon’s contention on its PE status because it cannot.
It is defined in black and white in the DTA between UK and Lux.
End of discussion – and you know that.
No it’s not the end of the discussion – tax avoidance is getting an advantage the law never intended
It’s clear Oxfam was intended to get this advantage and Amazon was not
End of discussion – and you know that
I’m going to try to post this to the Bournemouth University Labour Facebook page;o)
It was the charity commision which made charities form separate limited liability trading companies in the first place & now have backtracked on this somewhat.
Gift aid is a really stupid system that wastes countless millions on pointless administration. We should just make a assessment of an average of the income taxes paid in donations and reimburse charities on declared donation income. Our better still get rid of income tax and move it onto land value tax and pollution taxes.
Our tax structure is terrible for charities. VAT is terrible on charities as I can claim it back on what we spend as a ‘business activity’ and Income tax and NI. in many ways the tax burden on charities will be greater than many companies embroiled ion tax dodging
I have recently had to use expensive advisors to re-adjust our treatment of VAT – what a waste of charity time and expenses.
I agree
Gift Aid is stupid
And VAT can be very expensive for charities
If the charity shop is the agent of the donor of the goods, then that must mean the contract for the supply of the goods (when sold by the shop) is between the donor (as principal) and the customer of the goods.
This means that the donor and not the shop is liable to the customer for defective goods. It also means the shop has an indemnity against the donor for claims brought against it by the customer to whom the goods are sold.
This is basic agency law.
In reality, donors take their stuff to the shop and want no more to do with it, regardless of what bit of paper the charity shop asks them to sign.
The shop is really selling the goods on its own behalf as owner of the goods. I doubt it ever mentions to the customer the identity of the owner. The shop is really the principal, not the agent and everybody knows it. That’s the substance of the arrangement.
HMRC is encouraging charity shops to put a contrived, phoney form over substance.
Charity goods are, I am quite sure, sold on the basis of buyer beware, which is why so many items are rejected as unsuitable
But you are, technically right
I do not dispute this is absurd, but lots of law is absurd
The law needs changing, but you cannot say that this arrangement is avoidance because avoidance requires there to be risk that the action may be challenged. This one cannot be: it is said to be right by HMRC
So it may be daft, but it is not what you say it is
Buyer beware? These are consumer transactions, the concept doesnt exist. However, in practice, the bar for 2nd hand goods is pretty low. But if you have defective electrical goods, there is a risk, liability for which can’t be excluded.
When you are saying the test is ‘will it be challenged’, the only reason HMRC won’t challenge is because it has arbitrarily and inexplicably (and I suggest, without thinking too hard) chosen form over substance.
It has done so to get around Condition A in s416 of the Income Tax Act – a clear line item which clearly implies that the gift must be in the form of cash at the time of donation. If it can be so easily circumvented, what is the point of it?
So next time HMRC complains about ‘form over substance’ in light of tax avoidance, they can be fairly accused of applying the concept selectively and arbitrarily.
Oxfam is happy to engage in fakery (albeit with HMRC blessing) for the sole reason of getting Gift Aid.
Most charity shops will not sell electrical goods
Next straw you wan to clutch at?
The reference to the electrical items wasnt the core of my response and you’re deflecting from the jiggery pokery of the arrangement HMRC seems to be promoting.
But while you ask, I Googled ‘charity shop’ and ‘electrical’, and at least this one came up:
https://www.bhf.org.uk/shop/our-local-shops/furniture-and-electrical-shops
So you are presenting a diversion
Richard. I enjoy your blog but I fear your comments defending oxfam are going to come back to haunt you time and time again.
I can live with that
Being right is a comfortable place to be
And you can’t domestically avoid a government endorsed domestic tax arrangement
You can say that the government should change the arrangement (I have and do, often, and I would change this one) but not say that it is avoidance because avoidance requires there to be risk that the action may be challenged. This one cannot be: it is said to be right
I really am on the right side here
Gotta love the IEA.
This was posted on Conservative Home a few years days ago by their ‘Head of Lifestyle Economics’
http://www.conservativehome.com/platform/2016/05/christopher-snowden-is-envy-of-the-super-rich-by-the-rest-of-the-rich-driving-the-inequality-debate.html
Usual non-sensical verbage from the Tory Castle rag, after all a castle is a real Englishman’s home isn’t it!
As if the rising tide theory has not had several centuries to prove that it can lift all boats – and yet failed miserably by all measures. True it can lift lots of luxury super yachts at the top and even a few paddle steamers in the middle, but to claim that the rising tide has ever helped the flotilla of small boats at the bottom is just right wing perverse fantasy and propaganda.
Every time there is a financial storm, it is not the super yachts that get dashed on the rocks is it you great numbskull Tory twit!
Calling it a strawman argument would not be polite, it would be wrong. I don’t think you understand what a strawman is.
That is a strawman argument
Given that HMRC have said that Amazon, Google and other companies selling into the UK are not avoiding tax, do you now agree this is not tax avoidance?
From HMRC’s briefing “Non-resident trading companies which do not have a branch in the UK, but have UK customers, will therefore pay tax on the profits arising from those customers in the country where the company is resident, according to the
tax law in that country. The profits will not be taxed in the UK. This is not tax avoidance: it is simply the way that corporation tax works.”
No: find me guidance that says this is what HMRC suggest companies should do
It is how the law works
It is not what was intended
HMRC clearly intend Oxfam should behave as they do
I would have thought the difference was glaringly obvious
And it is, to all but those who will not see it
I have no idea of the technicalities being argued about by those questioning Oxfam, however I do wonder why anyone would choose to single out an organisation which has consistently fought to help and protect the poorest people on this planet, especially when there are far more questionable organisations (many operating under charitable status) who have far less humane intentions and yet escape sufficient public scrutiny of their financial/tax affairs.
Smokescreens and diversion tactics are always an obvious sign that the truth is starting to hurt some people!
Anyway I found this article with some comments from Oxfam’s FD and the chair of the Charity Tax Group, much more enlightening.
http://www.civilsociety.co.uk/finance/news/content/21824/oxfam_accused_of_using_gift_aid_for_tax_avoidance_by_right-wing_think_tank
Their responses are spot on
And consistent with what I have said
And questioning motive is fine: remember the aim of the IEA is to keep people in poverty and outside a democratic system so that capital can maximise its returns
The question is not whether they are, it’s whether they should. Tax free trading arms compete with mom & pop stores. Not fair.
Sorry, but that is untrue