When are we going to get serious, really serious, about corporation tax?
December 22nd, 2012The debate about tax avoidance has got to move on, and it will move on now that we’ve got a debate on it in the House on 7 January – and not in Westminster Hall, in the Chamber. There has been a huge swell of public anger against the Starbucks, the Googles, the Amazons, etc., who are paying less than 1%, or even less than 0.1%, of their gross profits made on sales in the UK – but nothing happens. It bears a close similarity to the phone-hacking saga: the evidence of hacking was overhelming , the police were sitting on huge quantities of incriminating material, yet nothing happened because of the cosy relationship between Scotland Yard and News International. In the same way nothing happens over tax avoidance because the cosy relationship between the corporate multi-nationals and the Tory party. Of course we are told that the big companies are diligent in complying with the tax laws (though they go to enormouse effort and expense to circumvent them by whatever artificial contrivance they can), and of course we are told that the government is cracking down hard on tax avoidance which they say is ‘morally repugnant’ (though they are actually themselves opening up huge tax loopholes for multinationals in tax havens). The cant is breathtaking.
If the government were genuinely serious about tackling tax avoidance, it is obvious what needs to be done. In order to block transfer pricing which allows multinationals to be taxed in a low tax jurisdiction of their own choice, which costs the British treasury tens of billions every year, the government would require all multinational companies to report on their assets, sales and profits country by country so that they were taxed correctly in every country they operated. It would require all nominee account holders in tax havens to be identified. It would require tax havens, at least those which are UK-controlled Overseas Territories or Crown Dependencies, to provide automatically to the relevant tax authorities in foreign countries details of accounts held by citizens of those countries so that they could be properly taxed, whether corporate of individual citizens. Tax havens which refused to comply would be told that unless they did so, all transactions in future involving those tax havens would be treated as illegal.
In other words, the problem is not that nothing can be done (of course it can) or that everything possible is already being done (of course it isn’t). The real problem is that neither the government nor the corporates have the slightest intention of carrying through an iota of reform because the present situation suits both sides perfectly – the corporates retain their ill-earned profits and the government through ‘light touch’ regulation keeps their corporate donations to win the next election.
December 23rd, 2012 at 3:08 pm
One must ask the question, why during 3 terms of a Labour government did Labour fail to tackle this flagrant abuse of the tax system?
As a previous member of the Labour cabinet perhaps Mr Meacher could enlighten us?
December 23rd, 2012 at 7:15 pm
Why did Mr meacher and his labour buddies not sort this tax abuse out in the 11 years they were in government
January 15th, 2013 at 12:15 am
An even bigger question is why has Michael Meacher suddenly gone quite? Instead of pontificating about how the current situation is supposedly perfect for the present government, why don’t you, Michael Meacher, actually provide an answer the above question? Labour had THREE TERMS in office and never enacted any of your proposals. The current government have been in power for less than 3 years and we get a Labour politician expressing outrage that they have not done this! The hypocrisy is sickening!
It’s worth pointing out that most of the anger against corporation tax and amount paid by US multinationals is born of ignorance of EU law. These companies are tax compliant with the European Single Market. The Single Market allows companies, indeed encourages them, to establish a single European base from which they can sell their products and services across Europe as if it were a single marketplace, hence the name.
Google operate out of Ireland (they can be based anywhere in Europe; there’s no obligation to be based in the UK or France and not Ireland or Luxembourg). Their primary source of revenue–advertising sales–takes place in Dublin, Ireland. Google pays the correct amount of UK corporation tax on profits from their UK operations. Margaret Hodge and the Public Accounts Committee seem to confuse Google’s Irish advertising revenue as British revenue, or otherwise think this revenue ought to be British revenue without really explaining why this is so.
Starbuck is a genuinely making a loss, which is not that hard to believe given that the retail coffee market is so competitive. They make a loss of several hundred million. Now you might argue that this is because transfer pricing and other shinanigans, however the Financial Times done the calculations to demonstrate that once you strip out all those payments, not just the ones you might regard as questionable but also those that are entirely legitimate (e.g. interest payments), Starbucks makes a genuine loss of £5 million.
Claims about Amazon are even more absurd. We can only apply corporation tax to the revenues from the operations of a UK permanent establishment. The extent of Amazon’s UK operations is distribution: storage and delivery. Yet we have a double tax treaty with Luxembourg which specifically defines distribution facilities as not a permanent establishment. Therefore, Amazon do not have a permanent establishment.
The UK-Luxembourg double tax treaty:
http://www.hmrc.gov.uk/manuals/dtmanual/DT12304.htm
January 16th, 2013 at 1:45 am
When MPs like John Redwood stop benefiting from Companies that they setup which specifically are designed to avoid tax.
“John Redwood has been arguing against forcing MP’s to disclose their tax affairs, now we know why.
“Surely there is some personal space?” Redwood pleads. “Do you want their medical records?” Furthermore, he is peeved at the bad press tax avoidance has been getting of late. “Maybe,” he suggests, “the people who are saving for the future are more virtuous because they won’t be a burden on the tax-payers when they retire.” Redwood has good reason to defend tax avoidance.
In the last financial year- leaving aside expenses- he topped up his MP’s salary with £187,796. The greater part of this he earned as Chairman of the Investment Committee of Evercore Pan-Asset Capital Management Ltd; a company he helped set up in 2007.
Evercore specialises in funds ‘domiciled
in tax efficient jurisdictions like Dublin or Luxembourg’, which enable investors to avoid UK taxes. The company boasts that it ‘looks after a number of successful individuals and families’ and the minimum investment for most of their products is £50,000″
January 16th, 2013 at 1:57 am
@Jan,
“As a previous member of the Labour cabinet perhaps Mr Meacher could enlighten us?”
“He was an elected member of the Shadow Cabinet from 1983 to 1997, but Tony Blair refused to appoint him to the Cabinet and instead made him Minister of State for the Environment.”
“Despite Blair’s hostility, Meacher gained a reputation for being a politician who was on top of a complex brief and was one of the longest serving minsters in the same job in the Labour government, from 1997-2003″
He wasn’t a member of the Labour Cabinet. Why don’t you ask Tony Blair (who now works for JP Morgan) and Gordon Brown (wherever he is now) about why they didn’t tackle Tax Evasion?
Tory Blair is a clone of John Redwood – they are both into Tax Avoidance Schemes.