It was always pretty absurd that goods were chipped from the UK to the Channel Islands just to be shipped back again, all to avoid VAT. That, the cost to the UK High Street and the loss it gave rise to of at least £130 million a year to the UK, was enough to have the Channel Islands' VAT abuse closed in April this year.
Now, as the Guardian reports today, the abuse is beginning again. And quite absurdly, this time the goods are going to the UA to be shipped bank. As they report:
The Guardian has seen evidence that The Hut — which last year saw sales jump almost 70% to £142m — has closed its warehouse in Guernsey only to shift some operations to a site outside Chicago. This follows the chancellor's decision to remove low-value consignment relief (LVCR) from products shipped via the Channel Islands.
Since Osborne's crackdown, which came into force in April, The Hut has even bought goods from suppliers, several in Britain, before sending them on a 7,000-mile round trip to the US before they reach customers in Britain. Shipments have included products, such as games and DVDs, which carry an age recommendation from the British Board of Film Classification, raising questions about why The Hut should ever choose to hold this stock in the US.
Such convoluted arrangements mean The Hut does not have to charge VAT to UK customers buying goods for less than £15, the threshold under which LVCR applies.
Asked what might be the commercial purpose of sending goods on a circular journey via the US, The Hut said in a statement that its delivery process "prioritises speed of order and customer service".
It added: "We operate a global consolidated stock system mirroring that of many of our e-commerce peers. This allows us to fulfil orders based on immediate stock availability across all of our warehouses. As a result, stock held in the UK fulfils both UK and international orders and similarly, stock held in the US fulfils both US, UK and international orders, with availability of stock the determining factor."
The company said goods representing only 13% of total revenue had been shipped from the US so far this year, while 30% of sales were to customers outside Britain.
This is, politely, a ludicrous claim by them. The goods sold into the UK from the US have no use in the US market: they're not US age ranked and many are incompatible with US formats. The only reason for the goods to be in the US is to avoid tax.
It's another assault on the UK tax system, the UK economy and the livelihoods of ordinary people in this country.
The apologists will, of course, say it's all legal so what's the problem? Morality, ethics well being of the majority, the survival of the state, the role of democracy and the rule of law do all pass these people by. But that is what these assaults represent.
A John Lewis chief executive, Andy Street has said:
Our customers expect a fair and level playing field and I suspect our customers do think [all] companies should be treated in the same way.
If international tax law does not achieve that it is now acceptable to say we have no choice in the matter: it is time to change that law. And I think the willingness to do that can be created.
What I can say with certainty is that we're in deep trouble if it is not possible: trouble deep enough to threaten the very survival of society in the long term since it cannot be sustained without tax and if an elite can opt out, and have their companies opt out society is not viable.
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Companies will do whatever is required to make their products cheaper than those of their competitors. Thats what keeps them in business.
Which is why your proposal to tax companies based on their number of in country employees is a really really really bad idea. Companies have a choice today on where they base their employees, and it is relatively easy to move significant numbers offshore. Then the UK loses the employee taxes as well as the corporate taxes. Amazon doesn’t have to have a fulfillment centre. It can close that down at a stroke and send all fulfillment through the Royal mail if that reduces its tax bill.
http://www.techdirt.com/articles/20110211/17415913064/amazon-announces-its-leaving-texas-tax-dispute-governor-blames-comptroller-says-hell-fix.shtml
I agree multi nationals need to pay their share but you will need to come up with a better answer than an employment tax.
Oh get real
a) Outsourcing can be covered in unitary tax
b) The reality is people work in countries like the UK, not Bermuda
Reality is something you find hard to deal with
Sadly they don’t work in the UK anymore. I work for a multi-national and have witnessed around 2000 backoffice people steadily being laid off and replaced by employees in Ireland. Why? Commissionaire tax. If the work is done in the UK, the profits have to be attributed to the UK. If the work is done in Ireland the profits are attributed to Ireland. So now we have the strange situation that if you phone for service you speak to an Ireland or Indian call centre. If you don’t pay your invoice on time, someone from Ireland or India calls you to complain. Its a reality under the existing laws. Only employees allowed in the uk are sales, otherwise it endangers the commissionaire structure.
If your proposal is adopted – assign taxes to countries based on the number of employees we will all be moving to Ireland as that is the only place where there will be any employment left.
Commissionaire tax?
New one on me
And the argument on tax al;location now is just wrong
Sorry – but this is fiction
Richard (M)
I think what Richard is trying to explain is Transfer Pricing for CT. His Corporation have decided that rather than be taxed on the basis they are trading in the UK, they’ve insisted on a “commissionaire structure” so that the “only employees allowed in the uk are sales”. Which, obviously, protects them from TP.
This is, at least, honest, but if their main market is the UK then its also incredibly dumb !
It also renders them very open to any kind of legislation (which we should have) or, failing that, suggestion, (which we must have) that UK Govt should give priority to UK taxpaying Companies . Likewise, UK consumers should be encouraged to trade with UK taxpaying Companies.
If that follows then I’m afraid Richard’s Company are heading into administration sharpish, followed only by the clarion call of Nelson Muntz.
im not sure what we are describing as fiction – but there are plenty of call centres (witness all the banks) that have moved from the UK to India, not for tax reasons alone (but because its cheaper to employ an indian than a UK person)
how would your unitary tax proposal deal with this situation out of interest?
They’d pay tax in India! Quite right to if that was where people are
You can read about it here:
http://mgpartners.ie/?p=358
Most multi nationals are using this structure already.
“By minimising the activities that the foreign commissionaire is involved in, the amount of income that will be taxable in the foreign country will be minimised and a higher proportion will be taxable at 12.5% in Ireland. It will also be necessary for the group to be able to provide clear evidence that these functions take place in Ireland”
Which means layoff the UK workforce, base in Ireland, then you move the profit to Ireland and pay low tax rates.
So an employment tax won’t work. You need to get more creative. Look at which companies are not paying their share, and build structures to make them pay their due which are fair to everyone.
Take road tax. UK companies had to pay high road taxes. If you based your business offshore you didn;t have that overhead. It was killing the UK road industry. Solution – everyone pays a daily rate, road tax scrapped. Result – all companies now pay their fair share
http://www.telegraph.co.uk/motoring/news/9036613/Foreign-lorry-drivers-to-be-charged-to-use-British-roads.html
Thats what we need here.
Amazon doesn’t pay UK taxes. John Lewis does. Business rates are very high. Result – John Lewis cannot compete with Amazon. How to fix? Lower UK corporate tax rates to match Ireland/ Luxembourg/Netherlands. Create an internet transaction tax that Amazon and John Lewis need to pay. Result – level playing field, everyone pays their share.
Starbucks doesn’t pay corporate tax. Costa does. Result – Costa cannot compete with Starbucks. Solution – lower UK corporate tax rates. Add a coffee tax. Costa and Starbucks both pay. Result – level playing field.
Not saying those solutions will work, needs to be a proper analysis and costing, but thats the sort of creative thinking that is needed by the Government. Identify those companies that are not paying their fair share. Find creative solutions to level the playing field. Follow the Texas example of how they resolved the Amazon issue. “we’ll drop the lawsuit for your prior tax avoidance if you invest and create so many thousands of jobs in our economy and pay your fair share going forwards.”
http://articles.chicagotribune.com/2012-04-27/business/chi-amazon-texas-reach-sales-tax-deal-20120427_1_sales-tax-tax-on-online-purchases-amazon-s-vice-president
Many of these multi nationals learn the tax limitation game in the US where they play the different states off each other to get the lowest tax rates by promising to create jobs. We need to look to how those states have solved this problem, as they face the same issues we are facing – local tax base is wiped out by the large corporates who wipe out the local competition due to their lower tax base, then the whole tax base collapses. No time to wait.
But I think basing taxes on how many employees a company has won’t work. The accountants will just add up the sums and say “each worker in the UK means we need to move $20m of profit from Ireland to the UK, with a tax rate difference of x% that means you are paying $1m annually for each UK worker. Result – companies will find ways to employ less people in the UK.
Such an arrangement is contractual – it has nothing to do with people
You have this completely wrong
What you are arguing for is no taxes on business – and that would be a disaster for everyone
How are you going to replace up to £50 billion of oost tax a year?
Or are you simply asking to shut almost half the NHS?
What’s happening with The Hut using the USA is exactly what many said would happen (although not with the USA!) when the Channel Islands were hit, and exactly the same thing will happen re offshore finance generally. If there is tax to be avoided then tax will be avoided.
It’s impossible to stop it without global tax harmonisation.
Not true
We can stop LVCR form all countries if we wish
http://www.hmrc.gov.uk/manuals/intmanual/INTM441040.htm
The arrangement is not dependent on headcount – the point I was making
I’ve read it
And treat it the way the PAC did
Coffee up your tax Caffe Nero… http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9685571/Caffe-Nero-CEO-fights-back-on-tax-claims.html
No tax then no spend. No spend then no defence, law and order and one or two other things. No tax or spend then no state. On the other hand re Guernsey VAT caper. We once bought stuff on telephone order from a company allegedly in Guernsey. After sniffing around it was apparent that neither the phone sales nor the despatching warehouse were in Guernsey. It helped that I knew the County where it all happened very well.
I hear a certain memory card company moved there distribution from jersey to switzerland
One solution to the LVCR, is to cap the amount any company can process. For small companies, there will little effect. if companies breach the limit, or refuse to cooperate , just put every item through customs.