Avoiding corporation tax

13 Nov 2012

Watched the news reports last night as well as the performance of the Directors of Google, Amazon & Starbucks in front of the select committee.
Despite the public outcry and claims of how morally wrong it all is I can't help but think:
Corporation tax is an unfair tax anyway as it is a punishment for success - why did we (UK PLC) not think about setting up an attractive Corporation tax regime to attract these Company HQ's? I did also think it strange that Google were attracted tio Ireland because of the low corporation tax and yet Ireland has been a recipient of a Euro bailout - but I guess that is another story.
The point is that these Companies are global entities and so presumably they are mitigating their tax liabilities across many different State borders and not just the UK. I would take a positive spin on this and look at ways that we can make UK PLC the preferred home for these worldwide mega companies by being more tax friendly. We need to be corporate friendly country and forget about penalising companies for success - or at least offer CT offsets if profits are banked in this country.

13 Nov 2012

I cannot agree more TH.
The piss poor journalistic take on this suggests to the wider public a very narrow minded picture.
These corporations bring thousands of quality jobs to the UK and to suggest they pay no tax is completely wrong as it implies that workers' tax and NI contributions are also somehow 'spirited away' and not handed over to the Exchequer.
This is totally false.
But, like everything else UK, people are too busy looking over their shoulders at what others are doing rather than 'go getting' for themselves and reducing the need to invite overseas corporations to build jobs here.

13 Nov 2012

Smoke n mirrors.

13 Nov 2012

Quote by Too Hot
Watched the news reports last night as well as the performance of the Directors of Google, Amazon & Starbucks in front of the select committee.
Despite the public outcry and claims of how morally wrong it all is I can't help but think:
Corporation tax is an unfair tax anyway as it is a punishment for success - why did we (UK PLC) not think about setting up an attractive Corporation tax regime to attract these Company HQ's? I did also think it strange that Google were attracted tio Ireland because of the low corporation tax and yet Ireland has been a recipient of a Euro bailout - but I guess that is another story.
The point is that these Companies are global entities and so presumably they are mitigating their tax liabilities across many different State borders and not just the UK. I would take a positive spin on this and look at ways that we can make UK PLC the preferred home for these worldwide mega companies by being more tax friendly. We need to be corporate friendly country and forget about penalising companies for success - or at least offer CT offsets if profits are banked in this country.

Agree Too Hot.
I read today that Starbucks turnover last year in the UK was 400 million pounds and yet still made a loss?? Something stinks there and if that were true they would be the worst business in the world. I am aware that turnover does not equate to profit, but come on if Starbucks were losing money in the UK, being the global brand that it is it could afford to just shut it down.
It is nonsense to even suggest this is the case, and just like Amazon UK where yesterday a female panelist was aiming questions at an Amazon top executive, asking about her books that she ordered from Amazon UK, were delivered by Royal Mail and yet they still say they are not a British company, as their head office is in Luxembourg, blah blah and blah again. He was certainly squirming in his seat so much so I thought he had shat his pants which he may well of done, after being made to look like the liar he so obviously is.
We all know that companies like this are fiddling the books. It may be a legal loophole on many occasions, but they should be plugged. We are all having to make sacrifices in the name of austerity measures and yet we still see huge businesses conning the tax man.

13 Nov 2012

Quote by starlightcouple
I read today that Starbucks turnover last year in the UK was 400 million pounds and yet still made a loss?? Something stinks there and if that were true they would be the worst business in the world. I am aware that turnover does not equate to profit, but come on if Starbucks were losing money in the UK, being the global brand that it is it could afford to just shut it down.

I listened to the breakdown of this subject on the radio a few weeks back. Apparently starbucks uses three particular loopholes. Firstly they rent their logo from Starbucks in another country, they buy their ingredients from starbucks in another country and they rent their stores via, yes you guessed it, starbucks in another country.
I wish I could remember which country it was but I'm sure someone will find out in due course, but rest assured the tax rate in the other country was far lower than the UK. Maybe the government will attempt to close these loopholes, maybe they might lower tax (yeah right rolleyes

) but I suppose we should at least be grateful that there are jobs out there for people.

13 Nov 2012

I have to disagree star.
Suppose Starbucks decides it can't be bothered anymore or paying full taxes as current Corporate Tax law dictates makes their business not profitable enough to keep it afloat.
They close down shop and get out of the country. What do we do with the thousands of people that are actually employed by them ?
Same for Amazon same for other companies. I do not understand why is everybody looking at what they pay the tax man and ignoring how many jobs they have created and how many people have salaries because of them.
On the BBC several months ago i heard an interview that stuck in my mind. They asked a guy making something like 500k+ an year how did the 50% tax on high earning people and other taxes on high earning people affected him.
The guy answered very simply: I fired the gardener and the cook apart from that no difference.
I know it is a crude example and it is not a global view of the whole tax system. But when things get to the little guy this is exactly what happens. When you tax the crap out of an entity that entity will cut its losses and usually the first losses that are cut are jobs since that is the easiest and fastest way you can return to what you consider equilibrium.

13 Nov 2012

my only question is, would amazon, starbucks and google pack up shop if the loop hole was closed dunno

i very much doubt they would wink

13 Nov 2012

Liza i concur!
But what they might do is take a good look at their business out of the new necessity and streamline their operations and cut back jobs to make up for the difference.

13 Nov 2012

Quote by flower411
If Starbucks were to shut up shop and leave it would allow the independant local busunesses (who do pay tax) to stay in business. I don`t really see that Starbucks no longer employing would suddenly make people stop drinking coffee.
Am I missing something here ?

show me a business man that walks away from 400 million :silly:

13 Nov 2012

Quote by GnV
I cannot agree more TH.
The piss poor journalistic take on this suggests to the wider public a very narrow minded picture.
These corporations bring thousands of quality jobs to the UK and to suggest they pay no tax is completely wrong as it implies that workers' tax and NI contributions are also somehow 'spirited away' and not handed over to the Exchequer.
This is totally false.
But, like everything else UK, people are too busy looking over their shoulders at what others are doing rather than 'go getting' for themselves and reducing the need to invite overseas corporations to build jobs here.

The counter argument to this is that Costa Coffee is a comparable UK based brand and they also employ people and as a consequence generate tax and NI revenue but - they also pay corporation tax as well.
In the late 80's/early 90's I knew some people who imported prams, puschairs and cots into the UK and it was a very, very successful business. As a consequence of their success they were getting hammered with personal tax on dividends and/or corporation tax if they did not take the dividends. Their accountant set them up a wholesale company in the Isle of Man and the wholesaler then bought the goods from the manufacturer and sold them with a considerable margin to their UK Company who then operated at break even because of the higher base purchase price. Suddenly they had a profitable IOM Company paying very little tax and also a successful UK Company that broke even every year, continued to distribute and sell its products, pay the staff and pay rent and business rates. I thought that this was a really smart move at the time.
Move on to the present day and we have a comparable set up with Starbucks. Starbucks have coffee shops all over Europe and in each of the countries the National Operator buys its coffee from the Starbucks wholesaler in Swizerland. The price paid will be dependant on the tax planning requirements for each individual country and means that the profit stays in Switzerland whilst the national operators tend to break even and corporation tax is mitigated everywhere apart from Switzerland - again - smart move in my opinion. Having said that, I can absolutely understand why Costa Coffee might be peeved.
What is the answer?? Who knows... I do happen to think that Corporation tax is a very unfair tax, irrespective of how or who levies it. Governments should be looking to reward successful Companies (as long as the profits stay banked in that country). These "loopholes" as they are being called, can't be closed and I wonder if as a consequence of this realisation the Exchequer adopts a more Corporate friendly tax regime in this country. The world is going through the biggest economic correction in more than 100 years and UK PLC needs to re-invent itself - maybe a zero rated corporation tax conditional on funds being banked in the UK will get Britain going again. I am sure that there are many global entities who would love to have a UK headquarters but if we are to be attractive we need a competitive tax regime.

13 Nov 2012

Quote by tintiri
I have to disagree star.
Suppose Starbucks decides it can't be bothered anymore or paying full taxes as current Corporate Tax law dictates makes their business not profitable enough to keep it afloat.
They close down shop and get out of the country. What do we do with the thousands of people that are actually employed by them ?
Same for Amazon same for other companies. I do not understand why is everybody looking at what they pay the tax man and ignoring how many jobs they have created and how many people have salaries because of them.

Do you really think that an employer such as Starbucks give a monkeys about any of their staff? If they are losing money on a turnover of 400 million pounds and they shut that part of their business down, are you seriously telling me they would shed a tear over the loss of x amount of jobs in the UK? Really?

Quote by tintiri
On the BBC several months ago i heard an interview that stuck in my mind. They asked a guy making something like 500k+ an year how did the 50% tax on high earning people and other taxes on high earning people affected him.
The guy answered very simply: I fired the gardener and the cook apart from that no difference.
I know it is a crude example and it is not a global view of the whole tax system. But when things get to the little guy this is exactly what happens. When you tax the crap out of an entity that entity will cut its losses and usually the first losses that are cut are jobs since that is the easiest and fastest way you can return to what you consider equilibrium.

So if I read you write, because an employer is employing staff they should get away with tax fiddles of sorts? Sorry I may have read you wrong.
The tax system is there for a reason. Yes tax is unfair, tax that I pay I feel is unfair. Corporation tax or death duty tax is unfair, but we have to pay it, as it is the law to do so. So why does any employer escape the same tax system that the normal guy on the street has to pay? PAYE gets taken at source and not a damn thing we can do about it, but self employed you can fiddle a few bits and bobs on your tax returns, but big businesses with clever accountants seem to be able to get away with blue murder. To use the excuse that you did above is obviously what the likes of Amazon and Starbucks think but that is not legal nor lawful to do.

13 Nov 2012

Quote by flower411
If Starbucks were to shut up shop and leave it would allow the independant local busunesses (who do pay tax) to stay in business. I don`t really see that Starbucks no longer employing would suddenly make people stop drinking coffee.
Am I missing something here ?

show me a business man that walks away from 400 million :silly:
In what way is that relevent to my comment ? dunno

its relevent flower as starbucks wouldnt walk away and leave room for little guy not with 400 million on the table
you would probably find the uk shops would be then be franchised

13 Nov 2012

Quote by flower411
If Starbucks were to shut up shop and leave it would allow the independant local busunesses (who do pay tax) to stay in business. I don`t really see that Starbucks no longer employing would suddenly make people stop drinking coffee.
Am I missing something here ?

show me a business man that walks away from 400 million :silly:
In what way is that relevent to my comment ? dunno

its relevent flower as starbucks wouldnt walk away and leave room for little guy not with 400 million on the table
you would probably find the uk shops would be then be franchised

13 Nov 2012

Quote by Lizaleanrob
If Starbucks were to shut up shop and leave it would allow the independant local busunesses (who do pay tax) to stay in business. I don`t really see that Starbucks no longer employing would suddenly make people stop drinking coffee.
Am I missing something here ?

show me a business man that walks away from 400 million :silly:
In what way is that relevent to my comment ? dunno

its relevent flower as starbucks wouldnt walk away and leave room for little guy not with 400 million on the table
you would probably find the uk shops would be then be franchised
This is 100% correct and would result in exactly the same scenario that we have now except the individual shops would be privately owned and tied to a single supplier of coffee with very little hope of making any meaningful corporation tax contributions. The Starbucks supplier in Switzerland continues to profit.
Surely the better option is to create a more positive environment in the first place?

13 Nov 2012

Quote by starlightcouple
So if I read you write, because an employer is employing staff they should get away with tax fiddles of sorts? Sorry I may have read you wrong.
The tax system is there for a reason. Yes tax is unfair, tax that I pay I feel is unfair. Corporation tax or death duty tax is unfair, but we have to pay it, as it is the law to do so. So why does any employer escape the same tax system that the normal guy on the street has to pay? PAYE gets taken at source and not a damn thing we can do about it, but self employed you can fiddle a few bits and bobs on your tax returns, but big businesses with clever accountants seem to be able to get away with blue murder. To use the excuse that you did above is obviously what the likes of Amazon and Starbucks think but that is not legal nor lawful to do.

Don't forget that Starbucks operate across Europe and not just in the UK (as does Google and Amazon) but it is only here in the UK that people are squeeling in outrage because it is part of the British psyche to get all hot and bothered if someone else is perceived to be "getting away with it."
This loophole can't be closed and it is a reflection of greedy tax regimes across Europe. The answer is not to complain about it but to revolutionise our own tax structures to make the UK more attractive to worldwide brands. In this way, we attract big business rather than encourage them to make creative ways of hiding their profits elsewhere. Let's be honest about this - irrespective of the ct that could be collected - if all of these companies simply banked their profits here in the UK it would be a boost to the country.

13 Nov 2012

there is a small growing movement against this type of business
people power is only a matter of time
tax avoidance schemes
off shore companies
deli call centres
all things the general public are starting to vote with their feet over

13 Nov 2012

You are taking the example too much to heart. Starbucks was just one of the companies.
Also i beg to differ, you cannot convince me that the moment Starbucks walks out of the streets miraculously there will be x hundred small time coffee shops ready to open doors.
With the required funds available to rent a place, build something and start selling, especially in central locations.
And again this was just one example. There are other companies that their business is not so easily replicated by local small time businesses not to say impossible.
I have to side with Too Hot as what is being said makes much sense to me. There just needs to be some reinventing happening and make the UK attractive via incentives and not shoot to tax until dead.

13 Nov 2012

Quote by flower411
If Starbucks were to shut up shop and leave it would allow the independant local busunesses (who do pay tax) to stay in business. I don`t really see that Starbucks no longer employing would suddenly make people stop drinking coffee.
Am I missing something here ?

show me a business man that walks away from 400 million :silly:
In what way is that relevent to my comment ? dunno

its relevent flower as starbucks wouldnt walk away and leave room for little guy not with 400 million on the table
you would probably find the uk shops would be then be franchised
This is 100% correct and would result in exactly the same scenario that we have now except the individual shops would be privately owned and tied to a single supplier of coffee with very little hope of making any meaningful corporation tax contributions. The Starbucks supplier in Switzerland continues to profit.
Surely the better option is to create a more positive environment in the first place?
If by "positive enviroment" you mean "clone" towns where every high street is identical, then I`d be happy to live with a hostile enviroment.
No business is set up with the intention of making a loss unless the idea is to avoid tax. It doesn`t matter how many people are employed by Starbucks because the nature of the business means that the jobs would remain even if Starbucks wasn`t the employer.
No, I would not want "cloned" towns but I would very much like Starbucks, Google, Amazon and others to have their HQ here in the UK. It won't happen with current CT regulations and in light of the economic corrections going on all over the world - perhaps this is an opportunity for Britain to be attractive to Global companies. It can't be that difficult to offer CT rollovers or offsets and even significant reductions if profits were banked here in the UK.

13 Nov 2012

I think our tax regime, is over complicated and inherently inefficient.
Tinkering achieves little.
A thorough overhaul is necessary.
Mebbe this current spindoctoring is with a view to garnering electoral support for such a move.
In any event, as usual, the members of a select committee makes themselves look like total dicks by displaying complete ignorance of the issues they are paid to understand.

13 Nov 2012

Quote by Too Hot
No, I would not want "cloned" towns but I would very much like Starbucks, Google, Amazon and others to have their HQ here in the UK. It won't happen with current CT regulations and in light of the economic corrections going on all over the world - perhaps this is an opportunity for Britain to be attractive to Global companies. It can't be that difficult to offer CT rollovers or offsets and even significant reductions if profits were banked here in the UK.

my only concern would be that even with a token tax would they still not find ways of avoiding paying it

13 Nov 2012

Quote by Lizaleanrob

No, I would not want "cloned" towns but I would very much like Starbucks, Google, Amazon and others to have their HQ here in the UK. It won't happen with current CT regulations and in light of the economic corrections going on all over the world - perhaps this is an opportunity for Britain to be attractive to Global companies. It can't be that difficult to offer CT rollovers or offsets and even significant reductions if profits were banked here in the UK.

my only concern would be that even with a token tax would they still not find ways of avoiding paying it
Yes

13 Nov 2012

I think we are all missing the point here.
Our tax legislation allows HMRC to look at a group of transactions and say – the figures here are designed to send profits outside the uk and so substitute the figures for real ones. So Starbucks may pay to Switzerland for every cup of coffee but HMRC say that’s fine but for tax purposes its 30p per cup.
The real question is why aren’t HMRC doing this – is it because it’s easier to hassle the small guy as he won’t be represented by a major legal team ?? – or perhaps agreement is reached somewhere else in the system which we know nothing about?? – ohh I feel a conspiracy theory coming on …

13 Nov 2012

Quote by alaninuk
I think we are all missing the point here.
Our tax legislation allows HMRC to look at a group of transactions and say – the figures here are designed to send profits outside the uk and so substitute the figures for real ones. So Starbucks may pay to Switzerland for every cup of coffee but HMRC say that’s fine but for tax purposes its 30p per cup.
The real question is why aren’t HMRC doing this – is it because it’s easier to hassle the small guy as he won’t be represented by a major legal team ?? – or perhaps agreement is reached somewhere else in the system which we know nothing about?? – ohh I feel a conspiracy theory coming on …

I doubt they could get away with that alan.
If an invoice is issued which meets all statutory requirements for cross company/international trading it cannot be tampered with in the way you describe by the Revenue. They may not like it, they may have doubts about its provenance but there is diddly squat they can do about it under international law.
To take your point to the extreme, as you suggesting that if the buyer in CompanyX buys less efficiently than the buyer in CompanyY for the same goods and pays 100 Swiss francs more for something, that HMRC can later impose what they think is an acceptable price?
Absolute nonsense, sorry.
Provided the actual price paid is reflected in the accounts of the foreign trader (with whom the UK probably have cross trading/taxation regimes anyway) market forces prevail and there can be no justification for tampering to suit its own purposes. Such an action would immediately put trading agreements between the two nations at severe risk of collapse - with all the consequences that would ensue.

13 Nov 2012

Quote by flower411
If Starbucks were to shut up shop and leave it would allow the independant local busunesses (who do pay tax) to stay in business. I don`t really see that Starbucks no longer employing would suddenly make people stop drinking coffee.
Am I missing something here ?

show me a business man that walks away from 400 million :silly:
In what way is that relevent to my comment ? dunno

its relevent flower as starbucks wouldnt walk away and leave room for little guy not with 400 million on the table
you would probably find the uk shops would be then be franchised
This is 100% correct and would result in exactly the same scenario that we have now except the individual shops would be privately owned and tied to a single supplier of coffee with very little hope of making any meaningful corporation tax contributions. The Starbucks supplier in Switzerland continues to profit.
Surely the better option is to create a more positive environment in the first place?
If by "positive enviroment" you mean "clone" towns where every high street is identical, then I`d be happy to live with a hostile enviroment.
No business is set up with the intention of making a loss unless the idea is to avoid tax. It doesn`t matter how many people are employed by Starbucks because the nature of the business means that the jobs would remain even if Starbucks wasn`t the employer.
No, I would not want "cloned" towns but I would very much like Starbucks, Google, Amazon and others to have their HQ here in the UK. It won't happen with current CT regulations and in light of the economic corrections going on all over the world - perhaps this is an opportunity for Britain to be attractive to Global companies. It can't be that difficult to offer CT rollovers or offsets and even significant reductions if profits were banked here in the UK.
Ok ....I`ll reveal my ignorance here lol

I can`t see any advantage to having the money banked in the UK (except to finance bankers bonuses, of course). Surely the fact that the money passes through our banking system is enough and the only further advantage to our economy is when some of it is taken in tax . Smaller businesses in this country generate money to be banked AND pay tax AND employ people.
What is the advantage of having large global companies who will do anything at all in their power to avoid contributing to the common good ?
In the short term there is a very real and significant lack of liquidity in our banks and despite assurances to the contrary, this is one good reason in the real world, why businesses can't get loans and people have difficulties getting mortgages. Compound this with the new requirements to increase the amount of liquid capital they have as a percentage of loans and the problem will not get any easier, anytime soon without extremely large cash deposits within the entire UK banking system.
In the mid term the health of UK banking will improve which in itself will create an increase in jobs within the financial services sector and an improvement in the economy as banks can finally act on their theoretical promises to lend more.
In the long term, a friendly tax regime and a reliable banking systeme are two fundamental requirements to attract global companies to our shores.

13 Nov 2012

Quote by alaninuk
I think we are all missing the point here.
Our tax legislation allows HMRC to look at a group of transactions and say – the figures here are designed to send profits outside the uk and so substitute the figures for real ones. So Starbucks may pay to Switzerland for every cup of coffee but HMRC say that’s fine but for tax purposes its 30p per cup.
The real question is why aren’t HMRC doing this – is it because it’s easier to hassle the small guy as he won’t be represented by a major legal team ?? – or perhaps agreement is reached somewhere else in the system which we know nothing about?? – ohh I feel a conspiracy theory coming on …

If you buy all of your stock from one supplier and you also own that one supplier and it supplies no one else then HMRC will use the elephant test as you describe - if it looks like an elephant and smells like an elephant, then as far as they are concerned, it is an elephant.
In the case of Starbucks, the Swiss distributor supplies all of the Starbucks European national trading entities and so the rule that you quote can't be enforced. It would need Europe wide intervention and at the moment it seems only to the Brits who are feeling hard done by. Most coutries seem to be accepting that Global entities have to have an operating system that works in every country not just their own.

13 Nov 2012

Quite. Why weren't the executives questioned more robust in their answers instead of behaving like naughty schoolboys?

13 Nov 2012

Quote by Ben_Minx
Quite. Why weren't the executives questioned more robust in their answers instead of behaving like naughty schoolboys?

Possibly they were somewhat bemused as to have to explain accounting procedures that have been accepted worldwide to a bunch of MP's who only seemed to love sounding "outraged."
The MP's argument that morally these Companies should be paying more in taxes is like saying to us all that because we had it so good up to 2008 and now the country is suffering, then morally we should give up another 10% of our income in tax. Unfortunately, MP's arguing about morals just does not carry much weight and no one is going to give up cash for morals.
Something has gone wrong and clearly the UK wants a slice of the action but there is no point at all in blaming those guys. The world has changed, global companies are reaching out and accounting procedures are in place that adhere to the law and benefit the companies concerned as best they can. If we want change, it is our own laws and rules that need addressing not the way that global brands operate.

13 Nov 2012

I think I agree with you.

13 Nov 2012

Quote by Too Hot
Possibly they were somewhat bemused as to have to explain accounting procedures that have been accepted worldwide to a bunch of MP's who only seemed to love sounding "outraged."

And therein lies another problem.
How on earth can UK plc drag itself out of the mire when its legislators aren't numerate?

13 Nov 2012

so how do we stop companies just registering for business tax breaks
and actually getting them to trade here also
then you will have the competition from other nations for this business. so what sort if incentives to do you give to keep them here
would it not be best to invest in manufacturing and secure our future as opposed to bowing to the corporates and hope no one steals this business