Big Companies Avoiding Tax

[turbobloke]

Eric Mc said:

No - lost Corporation Tax would have to be made up in some other ares of taxation.

It wouldn't 'have to be made up' if government spending was brought back into line. In fact, cutting waste / inefficiency / fraud would do the job.

An HMRC analysis cited by IFS puts the corporation tax gap at £7bn. Our beloved NHS spunks £10bn through waste, fraud and inefficiency per year (Reform). Take half of that. The government has been pretending that benefit fraud costs £1.2bn annually but reality is closer to £5bn. Take half of that.

Sorted.

There's plenty more to go after as according to the Annual Fraud Indicator 2012 (UK gov't) total public sector fraud was over £20bn.

However as a matter of urgency the UK needs to establish itself as a business-friendly area where companies want to relocate, and avoidi continuous whining about lawful corporate tax efficiency. Overall and quite obviously the country's Muppets in Parliament need to feed the green shoots of recovery rather than foment vexation in sheeple via this particular diversion.

[RYH64E]

speedy_thrills said:

So we're agreed then, we'll just cut £40bn in CT taxes. Literally our flawless plan is genius, it's hard to think why anyone hasn't thought of this already.

It isn't that simple. At present we have a complicated system of dividend tax credits, where we can offset corporation tax paid on profits against any income tax due on dividends so that the same income isn't taxed twice. So for many small business owners abolishing the dividend tax credit at the same time as abolishing CT would make little difference to the total amount of tax paid, but would result in a simpler and fairer system.

I would be in favour of some revision of corporation tax for small businesses, I pay CT on all of the profits made each year but the fast majority (probably 80%) of the profits are not taken out as dividend but instead are reinvested in the company. So my CT bill is huge in comparison to my personal earnings.

[anonymous-user]

speedy_thrills said:

Great.

So we're agreed then, we'll just cut £40bn in CT taxes. Literally our flawless plan is genius, it's hard to think why anyone hasn't thought of this already.

So we just need to find an additional £40bn that can be cut without causing voters to flee...or find a way to increase taxes equivalent to about 40% of the total VAT take without making voter flee...or simply add it to the outstanding debt every year adding about 4% of the current 8% deficit.

I can't imagine why we haven't made it in politics .

you're assuming all other things stay equal. how many multinationals do you think would move to the uk if you had zero ct? how many people would they employ? how much income tax, ni and vat would they pay? how many buildings would they build and occuppy? how many professional services would they use? 40bn? its peanuts compared to turning the uk into the monaco of the business world. why do brits have no balls any more?

[Ozzie Osmond]

RYH64E said:

I would be in favour of some revision of corporation tax for small businesses, I pay CT on all of the profits made each year but the fast majority (probably 80%) of the profits are not taken out as dividend but instead are reinvested in the company. So my CT bill is huge in comparison to my personal earnings.

What's the problem there? Your profits reinvested in the business have been taxed at a much lower rate (20%) than if you took them out as income - and when you eventually sell the business you will have the huge tax advantage of Entrepreneurs' Relief.

For those not familiar with Entrepreneurs' Relief it is a Capital Gains Tax rate of just 10%. This is a massive advantage compared with taking money out of a company as income which will be subject to the full horrors of National Insurance and PAYE tax at full rates.

[turbobloke]

Ozzie Osmond said:

RYH64E said:

I would be in favour of some revision of corporation tax for small businesses, I pay CT on all of the profits made each year but the fast majority (probably 80%) of the profits are not taken out as dividend but instead are reinvested in the company. So my CT bill is huge in comparison to my personal earnings.

What's the problem there? Your profits reinvested in the business have been taxed at a much lower rate (20%) than if you took them out as income - and when you eventually sell the business you will have the huge tax advantage of Entrepreneurs' Relief.

For those not familiar with Entrepreneurs' Relief it is a Capital Gains Tax rate of just 10%. This is a massive advantage compared with taking money out of a company as income which will be subject to the full horrors of National Insurance and PAYE tax at full rates.

Away from CGT, recent (2012) ESC C16 legislative changes have narrowed the category of solvent company distributions treated as capital rather than income, imposing a monetary limit of £25,000 which is better than the ludicrous proposal of £4k but - in context - remains peanuts.

http://www.freeivaadvice.co.uk/ESC_C16.htm

Lawful tax avoidance still wets lots of knickers in officialdumb but what the UK doesn't need is Georgie Boy, Dave, Wince, The Ed Miller Band and hippyville whingeing about lawful corporate tax efficiency when the same muppets (not the hippyvile muppets) are responsible for the tax laws being followed by businesses.

What the UK does need, and quickly, is even more companies operating than now each paying even less in corporate taxes than now giving more tax-take than now and more jobs than now.

[NailedOn]

Eric Mc said:

I wish they didn't keep banging on about turnover. They are missing the proper target - which is where the company is generating its profits. That is the nub of the argument.

Say Google generates turnover of £500 million through sales to UK customers.
In addition it also generates £10 million to Irish customers.

It claims that ALL its trading profit was generated in Ireland and are therefore subject to Irish rather than UK Corporation Tax.

That is the true debate.

Agreed. I think that this is the heart of the matter: That some of these companies are using extreme interpretations of the tax laws to their benefit.
Watching Google trying to explain their idea of the difference between marketing, selling and closing would be a joke if it wasn't so clearly a device to avoid tax.

[einsign]

fbrs said:

how many multinationals do you think would move to the uk if you had zero ct? how many people would they employ? how much income tax, ni and vat would they pay? how many buildings would they build and occuppy? how many professional services would they use? 40bn? its peanuts compared to turning the uk into the monaco of the business world. why do brits have no balls any more?

+1

[Ozzie Osmond]

NailedOn said:

Eric Mc said:

They are missing the proper target - which is where the company is generating its profits. That is the nub of the argument.

Agreed: some of these companies are using extreme interpretations of the tax laws to their benefit.

All very true.

[RYH64E]

Ozzie Osmond said:

What's the problem there? Your profits reinvested in the business have been taxed at a much lower rate (20%) than if you took them out as income - and when you eventually sell the business you will have the huge tax advantage of Entrepreneurs' Relief.

When I sell? You seem to know more about my plans than I do, and even if I sell, what's to say ER will still be available?

Would you be happy paying tax today on a bonus you might or might not receive in 10 or 20 years time?

[Ozzie Osmond]

RYH64E said:

Ozzie Osmond said:

What's the problem there? Your profits reinvested in the business have been taxed at a much lower rate (20%) than if you took them out as income - and when you eventually sell the business you will have the huge tax advantage of Entrepreneurs' Relief.

When I sell? You seem to know more about my plans than I do, and even if I sell, what's to say ER will still be available?

Would you be happy paying tax today on a bonus you might or might not receive in 10 or 20 years time?

So tell us, why are you building this company? For the good of mankind? To help the environment? To fund your favourite charity? Or to make money?

If the latter, you have three choices,

1. Pay yourself a salary - and pay lots of tax.
2. Pay yourself dividends - much more efficient.
3. Expand the company - why???

You're not going to live for ever so you'll be selling out, unless the company collapses, in which case you'll be kicking yourself for not taking the dividends.

All of which brings us back to, "why are you doing it?".

[RYH64E]

Ozzie Osmond said:

So tell us, why are you building this company? For the good of mankind? To help the environment? To fund your favourite charity? Or to make money?

If the latter, you have three choices,

1. Pay yourself a salary - and pay lots of tax.
2. Pay yourself dividends - much more efficient.
3. Expand the company - why???

You're not going to live for ever so you'll be selling out, unless the company collapses, in which case you'll be kicking yourself for not taking the dividends.

All of which brings us back to, "why are you doing it?".

None of which has any relevance to the proposition put forward by Eric that it makes more sense to tax income if and when drawn down rather than tax money that's re-invested (in this instance) to help grow a small company (for whatever reasons, none of which are your concern). A sensible proposition imo, especially considering the ability of large and multinational companies to avoid the same tax entirely.

[Ozzie Osmond]

IMO it would make no sense to let companies roll up their profits tax free for ever. A modest slice of Corporation Tax along the way doesn't seem too much of a burden. Especially with full tax relief for loan interest where additional finance is needed to expand the business.

One can have a debate about what rate of CT is appropriate. Here it would make no sense IMO for companies to be able simply to locate themselves in the lowest tax jurisdiction and declare all of their earnings there. My own solution to this would involve a move towards global tax policies. Including the obliteration of all tax havens.

[RYH64E]

Ozzie Osmond said:

My own solution to this would involve a move towards global tax policies. Including the obliteration of all tax havens.

Excellent ideas, as are world peace and the abolition of poverty.

[AJS-]

Ozzie Osmond said:

IMO it would make no sense to let companies roll up their profits tax free for ever. A modest slice of Corporation Tax along the way doesn't seem too much of a burden. Especially with full tax relief for loan interest where additional finance is needed to expand the business.

Brilliant. The whole problem with our current set up is the lack of debt, and we urgently need to encourage more borrowing through the tax system.

[RYH64E]

coyft said:

RYH64E said:

Ozzie Osmond said:

My own solution to this would involve a move towards global tax policies. Including the obliteration of all tax havens.

Excellent ideas, as are world peace and the abolition of poverty.

I don't think it's an excellent idea at all. A global tax policy will create a global monopoly, controlled by politicians. The ability for politicians to set their own tax rates, keeps them honest and competitive.

Never gonna happen...

[completetangent]

Ozzie Osmond said:

NailedOn said:

Eric Mc said:

They are missing the proper target - which is where the company is generating its profits. That is the nub of the argument.

Agreed: some of these companies are using extreme interpretations of the tax laws to their benefit.

All very true.

This is where Google is in trouble. The whistleblower (today's Times) makes it clear that for a significant period, sales were negotiated and closed in the UK; and only then was it rubber-stamped in Ireland.

Seems HMRC has a rule which would have dealt with exactly that arrangement anyway, so you have to wonder why it didn't bother to enforce it...

[Ozzie Osmond]

AJS- said:

Ozzie Osmond said:

IMO it would make no sense to let companies roll up their profits tax free for ever. A modest slice of Corporation Tax along the way doesn't seem too much of a burden. Especially with full tax relief for loan interest where additional finance is needed to expand the business.

Brilliant. The whole problem with our current set up is the lack of debt, and we urgently need to encourage more borrowing through the tax system.

Errrm, sounds as though you don't understand the tax system as it is now.

[anonymous-user]

Ozzie Osmond said:

My own solution to this would involve a move towards global tax policies. Including the obliteration of all tax havens.

no tax competition. i'm sure politicians would love that. do you imagine you'd pay more or less?

to france with a top rate of tax of 75% the uk is a tax haven so is the uk to be 'obliterated' or just countries with a lower tax than the uk? anyway who the hell are the uk or eu to decide what other countries tax rates should be? as for a global agreement, the us tolerates the biggest global tax haven within its own borders; delaware! doh. back to the drawing board ozzy.

Edited by fbrs on Sunday 19th May 18:46

[maffski]

rohrl said:

UK politicians/HMRC - "How are you going to run a UK-wide distribution service from France? If you're deriving profits from your UK business then pay the tax due."

Not hard to get around. Amazon clearly state you are buying from Amazon EU SARL, a Luxemburg company. Amazon run a UK company for the warehousing and distribution, but they are paid by Amazon SARL to hold stock owned by Amazon SARL. This just happens to mean that the amount Amazons UK distribution business earns is always about the same as its expenses... So there's no profit in the UK to be moved as we're all happily buying direct from Europe.

That is how you run a UK distribution service from France (or rather Luxemburg as it's more tax efficient).

[Ozzie Osmond]

fbrs said:

to france with a top rate of tax of 75% the uk is a tax haven so is the uk to be 'obliterated' or just countries with a lower tax than the uk? anyway who the hell are the uk or eu to decide what other countries tax rates should be? as for a global agreement, the us tolerates the biggest global tax haven within its own borders; delaware! doh. back to the drawing board ozzy.

All you are doing is exhibiting your ignorance.

France does NOT have 75% corporation tax.

And if you think UK can become a tax haven you are deluded. Just like all the clowns (Kippers or otherwise) who think UK can undergo a miraculous transformation into Norway or Sweden.