
Tax crackdown on banks and multinationals 'to raise £5bn' - dazbradbury
http://www.bbc.co.uk/news/business-30310832
======
B5geek
"Profit" is very easy to hide. Income, not so much. The difference is 'net' vs
'gross'.

The horrid nature of current tax law is geared towards lawyers and accountants
being creative. The system is geared to reward con-men and punish the honest.

A flat-rate tax system based on income might be more effective but the real
danger is the tax-breaks that companies get. I see this all the time with
Ford/Chrysler/GM. "We will build a factory in your city/state/county if you
give us X-billion in tax breaks."

My thoughts: You want to sell your product don't you? In Canada we had a law
called "The AutoPact" [1] which basically said that for every 3 cars that you
sell in Canada, 1 must be built here.

Corporate welfare will always be a greater hindrance to tax-coffers then
personal welfare will ever be.

Why are we paying companies so they have the privilege of taking our money?

[1][http://en.wikipedia.org/wiki/Canada%E2%80%93United_States_Au...](http://en.wikipedia.org/wiki/Canada%E2%80%93United_States_Automotive_Products_Agreement)

~~~
ams6110
_Why are we paying companies so they have the privilege of taking our money?_

Companies don't pay taxes. Ever. Their money comes from customers buying their
products and services. If they are not taxed, they can offer a lower price to
the customers. If they are taxed, that simply means higher prices for
customers.

Ultimately, individuals always pay the taxes.

~~~
DanBC
Your argument fails when we see Starbucks selling expensive coffee while
avoiding tax.

Starbucks does not avoid tax to give me a good deal. Starbucks avoids tax so
that Starbucks can make more money.

~~~
vixen99
I don't think it does. Any sensible business avoids tax i.e., minimizes its
tax bill. If it gets up to what are perceived as evident shenagans to do this,
governments can change the law (as has been announced today in the UK) and
consumers can decide if they still want to do business with the company.
'Don't drink their coffee' would be the advice re Starbucks, would it not?
Good deals usually but not always add up to good business which equates with
making more money. If Starbucks offer a lousy deal then presumably they'll
either have to change the deal or go down. Plenty of other places to drink
coffee.

------
timje1
As far as I can tell, they shift profits overseas by shifting extra, semi-
fictional 'costs' to the UK subsidiary - for example, if the UK subsidiary of
Starbucks makes $100m profit, but has to pay the Canary Isles subsidiary $100m
in licensing costs, suddenly the UK subsidiary owes no tax.

Given this structure, how does the HMRC plan on distinguishing between
legitimate costs and semi-fictional ones? I imagine as soon as the law is
changed, the companies will alter their books so that they shift all their
'legitimate costs' to the UK subsidiary.

I suspect that this shift will end up benefitting tax accountants and lawyers.

~~~
Turing_Machine
Some of the arrangements can get pretty complex.

[http://en.wikipedia.org/wiki/Double_Irish_arrangement](http://en.wikipedia.org/wiki/Double_Irish_arrangement)

Basically, sending the money from Germany (or wherever) -> Ireland ->
Netherlands -> Ireland -> Cayman Islands results in no taxes being paid (or
legally due).

~~~
alkonaut
Which is why tax law should be a judgement call by authorities rather than a
mathematical operation. As long as you follow the spirit of the law you pay
the mathematical tax. If you are found to evade tax by any scheme such as
expensive international inter-company loans or excessive license fees, then
the authorities step in and simply tax you for the amount you would have paid
withiut using those schemes.

~~~
ptaipale
Arbitrary judgement calls by authorities are, well, arbitrary. Not a good
idea, rule of law is better even if the law is not perfect.

~~~
alkonaut
Judgement and law interpretation is used for all other areas of law. It's
still "rule of law", still subject to appeal and so on. If laws can't be made
that covers loopholes then just outlaw loopholes.

------
Mvandenbergh
I'll be interested to see how this is implemented in practice. The way this
kind of tax avoidance works is for subsidiaries in low-tax jurisdictions to
charge the ones incorporated in higher tax jurisdictions high fees for things
like access to IP.

This "artificially" inflates the profits for the low-tax company and depresses
the profits for the high-tax company.

Artificially is in quotes because it's hard to establish a legal rule to
determine what is and isn't fair pricing for IP and services which is why I'm
interested in seeing how this will be enforced.

Edit: the reason that so many of these were based in Ireland was because until
2015 Ireland won't have rules on this sort of intra-group "transfer pricing"
transaction. You can't do this between two US or a UK and a US company because
those countries have rules that prevent it.

~~~
grey-area
I suppose one way to clamp down on any such activities would be to simply
class all payments to subsidiaries in low-tax jurisdictions as qualifying for
this extra tax. That would avoid any arguments over what exactly is a fair
price for certain services or whether certain services/fees qualify.

~~~
notahacker
And intra-group licensing costs and royalties should also be disregarded as
costs for tax purposes, since there's no real or opportunity cost to allowing
one part of the group to use another's IP _except_ for the cost savings that
can be generated by shifting the tax burden.

~~~
sokoloff
Imagine a scenario where McDonalds corp has both company owned stores and
franchisee-owned stores and that both are charged the same, substantial amount
for the use of McDs trademarks.

Should the McDs owned store be wildly more profitable in the eyes of the tax
authorities?

Suppose that the franchisee and the company store both use the McDs supply
chain to buy ingredients. Are those costs "real enough to count"? If not, why
not? If so, why aren't the trademarks "real enough"?

If the trademarks don't count intra-group, what if the trademarks are only
licensed (for $1) subject to the use of the company supply chain for
ingredients? This serves a legitimate purpose of protecting the trademark and
giving the customers a uniform experience at all stores, or it serves as an
underhanded tax dodge, depending on which reporter is writing the article...

I'm merely suggesting that trying to author precise legislation around this
area is inherently a slippery slope and "intra group IP licenses are barred"
isn't going to be perfectly effective. Lawmakers have a legitimately hard
problem to solve and their "attackers" have a lot at stake to find/exploit
intended or unintended loopholes.

~~~
notahacker
Sure, the McDs-owned store generates substantially more profit for its
ultimate owner (the shareholders of MCD) than the franchise does for the
franchisee, so I can't see any logical reason why McDonalds or its
subsidiaries shouldn't pay more tax on that store than the franchisee.

Of course there will still be loopholes. But the left hand of the business
paying royalties to the (tax-advantaged) right falls under the heading of
palpably ridiculous, especially when unlike the hypothetical McDs example the
royalty rates are set by the tax planning division of an accountancy rather
than the market.

~~~
sokoloff
My example was meant to consider only the tax generated as a result of the
activities of the retail fast-food location.

Of course corporate McDs will pay (the same) tax on the IP-related and/or
supply chain profits generated by either store.

------
ermintrude
At least it hasn't taken the Tories nearly a whole term to begin to address
this issue...

Got to say I agree with this
[http://www.thetimes.co.uk/tto/news/politics/article4285739.e...](http://www.thetimes.co.uk/tto/news/politics/article4285739.ece)
(paywall).

Summary: Hodge wants to make it a criminal offence to sell or promote illegal
tax avoidance schemes in the first place. So if HMRC challenge a scheme and
it's found illegal, the lawyers/accountants who developed it can be criminally
prosecuted as well as those who used it.

~~~
driverdan
> Hodge wants to make it a criminal offence to sell or promote illegal tax
> avoidance schemes

Isn't promoting something illegal already illegal by definition?

~~~
ermintrude
Apparently not:

"HMRC can prosecute tax advisers if they try to hide schemes, but has no
sanction against those that create and sell artificial trading arrangements
designed solely to dodge taxes."

That's what she wants to change.

~~~
pcrh
That's hardly likely to make any difference. The accountants and lawyers will
simply move to wherever their activity is legal.

------
nly
Here's a list of all the companies registered in the UK with the string
'Google' in them, that aren't listed as 'dissolved' (there are a lot of
those), and aren't obviously registered by
morons[0][1][2][3][4][5][6][7][8][9] who think they can infringe on the
trademark.

    
    
        BR017040    GOOGLE COMMERCE LIMITED UK ESTABLISHMENT 
        FC031970    GOOGLE COMMERCE LIMITED UK ESTABLISHMENT 
        5903713     GOOGLE PAYMENT LIMITED 
        3977902     GOOGLE UK LIMITED 
        9183796     GOOGLE VENTURES UK MANAGEMENT COMPANY, LIMITED
    

I believe the first two are part of their Double Irish tax dodge:
[http://vimeo.com/68581263](http://vimeo.com/68581263) so those should
disappear soon.

[0] [http://www.endole.co.uk/company/09054162/google-ninjas-
limit...](http://www.endole.co.uk/company/09054162/google-ninjas-limited) [1]
[http://www.endole.co.uk/company/08533581/google-pizza-
ltd](http://www.endole.co.uk/company/08533581/google-pizza-ltd) [3]
[http://www.endole.co.uk/company/08770094/google-it-
ltd](http://www.endole.co.uk/company/08770094/google-it-ltd) [4]
[http://www.endole.co.uk/company/09263100/google-
internationa...](http://www.endole.co.uk/company/09263100/google-
international-web-ltd) [5] [http://www.endole.co.uk/company/08537202/google-
ads-ltd](http://www.endole.co.uk/company/08537202/google-ads-ltd) [6]
[http://www.endole.co.uk/company/08497535/google-analytics-
li...](http://www.endole.co.uk/company/08497535/google-analytics-limited) [7]
[http://www.endole.co.uk/company/08615290/google-logistics-
lt...](http://www.endole.co.uk/company/08615290/google-logistics-ltd) [8]
[http://www.endole.co.uk/company/09042316/google-property-
lim...](http://www.endole.co.uk/company/09042316/google-property-limited) [9]
[http://www.endole.co.uk/company/08573677/google-
recruitment-...](http://www.endole.co.uk/company/08573677/google-recruitment-
limited)

~~~
hkmurakami

        9054162     GOOGLE NINJAS LIMITED 
        8533581     GOOGLE PIZZA LTD. 
    

OK. Had to highlight these two.

~~~
Aardwolf
Ninjas and Pizzas - the list is missing turtles.

------
JonnieCache
Missing end of the sentence: "...which they then artificially shift abroad."

Details aren't very clear. It's called the Diverted Profits Tax, there's a
longer article here:
[http://www.bbc.co.uk/news/business-30306266](http://www.bbc.co.uk/news/business-30306266)

------
delingpole
In order to make this workable, the government would assume that certain
industries make certain profit margins e.g. 8% assumed profit for the sale of
goods to 32% assumed profit for the sale of services. [0][1]

According to the FT:

"the new tax would be a “deemed profits” tax rather than a corporation tax, so
as to sidestep issues about double tax treaties.

[...] the Treasury would identify profits that escaped tax in the UK because
of royalty arrangements or the absence of a taxable presence.

[...] It seems to be something completely novel . . . It is a huge stick that
will stop this artificial avoidance. The difficulty will be how it is defined
in practice.” [2]

[0] Similar way to the way the UK flat rate VAT scheme works

[1][http://www.internationallawoffice.com/newsletters/Detail.asp...](http://www.internationallawoffice.com/newsletters/Detail.aspx?g=df76beff-e892-4399-a960-04b1de632483)

[2]
[http://www.ft.com/cms/s/0/127010ea-7af9-11e4-b630-00144feabd...](http://www.ft.com/cms/s/0/127010ea-7af9-11e4-b630-00144feabdc0.html#ixzz3KqqtmghP)

------
gadders
I wonder if this will affect Ikea, which pretends to be a charity [1], as well
as the usual Starbucks/Amazon/Google suspects.

[1]
[http://www.economist.com/node/6919139](http://www.economist.com/node/6919139)

~~~
icebraining
It's not a charity, it's a non-profit. The comparison with the Gates
Foundation makes no sense, there's no expectation that it should have a
charitable purpose, it's simply a legal entity that has other goals instead of
having a fiduciary duty to shareholders.

In particular, it only receives tax benefits if it's classified an
"Institution for General Benefit" (ANBI) by the Dutch IRS, which IKEA _isn
't_.

~~~
gadders
From the article:

"What emerges is an outfit that ingeniously exploits the quirks of different
jurisdictions to create a charity, dedicated to a somewhat banal cause, that
is not only the world's richest foundation, but is at the moment also one of
its least generous. The overall set-up of IKEA minimises tax and disclosure,
handsomely rewards the founding Kamprad family and makes IKEA immune to a
takeover."

~~~
icebraining
I know what the article says. I'm saying it's wrong. It's trying to apply the
US concept of "foundation" to the Dutch concept, which is invalid.

------
Shivetya
Funny how the say banks and multinationals will pay, I really think they
should in turn put on every receipt how much the end consumer is actually
paying in tax, all under the idea of disclosure.

Food places like starbucks and McDonalds they could put it next to the
mandated calorie count. This sandwich will cost 400 calories and 40 cents in
built in taxes and twenty cents in sales taxes.

People really need to understand just how much they are truly taxed, far too
many see only the sales tax and not many more understand payroll. Indirect
taxes is the big skeleton in the closet.

~~~
crdoconnor
The tax incidence of profit taxes falls pretty much entirely on the
shareholders. The consumer is unaffected.

Companies that have their profits taxed at higher rates would sure LOVE to
raise their prices to compensate for lost profits, but a little thing called
competition prevents them from doing so.

>People really need to understand just how much they are truly taxed

Indeed. The level of tax literacy and misunderstanding among the general
population appalls me sometimes. I can think of at least one example right
now...

~~~
mike_hearn
> The tax incidence of profit taxes falls pretty much entirely on the
> shareholders. The consumer is unaffected.

Well, only if you believe profits aren't used for anything except dividends.
The "consumer" can be affected when they don't get new products, or existing
products are worse, or when they fail to be hired as an employee, etc.

~~~
crdoconnor
Theoretically if the profit tax approaches 100% then nobody will form
companies because what's the point?

Rest assured, though, the levels we are discussing here will have zero effect
on Starbucks' ability or desire to bring us new pumpkin vanilla spice lattes
every winter season.

------
atwebb
If I glossed over that correctly, it seems more like a "Bank tax rule
tightening", they estimate 5B over 5 years, 4 of which come from
changing/tightening banking regulations and 1B (over 5 years) of which comes
from mutlinationals operating in the UK. Not sure if that's ~200M a year or if
there's some front/back loading and I really have no clue as to UK
revenue/profits for all multinationals combined but (fuzzy math) is 200M a
year for all of them a significant change? Does this only target companies of
a certain size/category?

~~~
talmand
I don't know about overseas, but here in the states every time politicians
give out an estimate on how much revenue a new tax will generate they tend to
be grossly incorrect at the end of the year. The reason is that if you tax an
activity then people do things to avoid paying the tax for that activity;
stop, move, or avoid.

Sad thing is, the politicians make the revenue announcement so they can go
ahead and spend the money as if they've already collected it.

------
tehwalrus
Devil will be in the detail, and he's not giving any details yet.

Without significant simplification of the tax system, no such tax bill will be
accountant-proof, or treaty-proof.

~~~
awjr
I'm going to assume that any significant off-shore charges from subsidiaries
will be considered profit and the company will need to prove otherwise. Should
cause a few cases to go through the law courts.

------
coldcode
Good luck with that. There is no way short of global world government to force
a company with subsidiaries and business all over the world to pay taxes
everywhere.

~~~
awjr
Don't think it's about everywhere. What they are trying to stop is the profits
made in the UK being offset against artificial debts from another division of
the same company in a different more tax efficient country.

~~~
mike_hearn
The problem is profits aren't made in the UK at all. For big tech companies
usually they have a subsidiary in a given country, and that subsidiary charges
the parent company for access to its work/innovations/whatever. The subsidiary
does not itself receive payment for the global companies operations in that
country, despite how unintuitive it is.

This is why the UK arms of these companies don't make any profit - they charge
the parent companies more or less at cost. Meanwhile people who want to buy
their services sign a deal with the Irish subsidiary. But legally these are
different companies.

Additionally it's impossible to say how much profit is being made in a
particular country. You can count _income_ quite easily, but then what
percentage of the cost of developing Facebook can be accounted to servicing
the UK market? It wouldn't make sense to allocate ALL the cost of creating
Facebook to the US market and treat every other country as pure profit, as
obviously there are costs involved with being international.

I'm not convinces Osborne has any real clue about the morass he's wading in to
here. It gets worse when you think about the possible future impact. Imagine
Google and Facebook didn't have any UK presence at the moment but were looking
to hire people there, because of an abundance of skilled people in, say,
London. But entering the UK suddenly means a 25% tax on their UK sourced
income. Why would they ever hire the first employee? If they stay out
entirely, they aren't in UK jurisdiction so there'd be no reason for them to
pay any tax there.

~~~
realusername
Yeah but this is an artificial construction which only exists on paper, in
reality, Google is indeed making profit in the UK, that's the point.

~~~
ptaipale
This "artificial construction" is called the EU Single Market, where the idea
is that a company in, say, Luxembourg, can sell to the UK.

------
touristtam
Funny how the same UK government propose to have devolution of corporation tax
in Northern Ireland (NI), which is still part of the UK so the NI Government
can match the corporate tax of the Republic of Ireland.

[http://www.bbc.co.uk/news/uk-northern-
ireland-30131556](http://www.bbc.co.uk/news/uk-northern-ireland-30131556)

------
DodgyEggplant
Much ado about tax collecting. Less ado about how, and on what, big
governments spend the tax money.

~~~
vixen99
Now you're on to something really important! I am not aware (granted - I guess
because I happen not to have seen it) of any really wide ranging high level
discussion on this massive subject nor do I expect there to be. Sheep probably
debate in their sheepish style, pecking orders but probably not the sheering.

------
motters
I think this is good news. Companies such as Google and others have been
avoiding paying taxes for too long. They do this in ways which up until now
were fraudulent but technically legal, by creating fictional companies or by
laundering money via havens.

~~~
ams6110
Technically legal is by definition "not fraudulent." It is their duty to their
shareholders to pay the minimum tax they legally must pay.

------
drsintoma
The term "google tax" made me think is was related to google having to pay
ISPs for using their tubes. Glad to see that is about actual tax evasion.

~~~
rahimnathwani
Evasion !== Avoidance

At least in the UK, these two words have entirely different meanings when
applied to tax. Tax evasion is not paying tax which is due. Tax avoidance is
arranging your activities to reduce or minimise the taxes which are due.

~~~
ProAm
The activities that giant multinational corps take part in it is effectively
the same thing.

~~~
bmelton
Only if we pretend that individuals don't do the same thing.

When I check the box to count my daughter as a dependent, I am "avoiding"
taxes. When a multi-national corporation inverts their company to Canada, they
are "avoiding" taxes. So long as all of the above are within the rules,
neither act is immoral.

~~~
lmm
Or both are. Here in the UK I've never made any attempt to optimize my taxes;
I called HMRC once (when I saw a big increase in how much tax I was paying
over the previous month's payslip) and they told me everything was fine, and
that's the total extent of my interaction with them. (I even avoid ticking the
gift aid box on charitable donations, as I think that's immoral). I agree that
there is no legal obligation not to minmax your taxes, but I think there is a
moral one.

~~~
NLips
Gift aid is a specific scheme created by the government to increase charitable
giving. At the 20% income tax bracket, it makes no difference to you but helps
the charity, and at the 40+% brackets it makes a difference to the charity and
provides you with a fraction back.

You still end up with less money than had you not given to charity, and it's
MEANT to work this way. It's a very different kettle of fish to exploiting tax
loop holes.

~~~
lmm
> it makes no difference to you but helps the charity

And penalizes the government. I'm happy giving my own money to Music For Rich
Old White Dudes, but I don't think it's moral for me to take money away from
the general taxation pool for that.

------
lukasm
VAT 0%,5%,20%. 1% revenue tax, companies can deduct only 30-80% VAT. No
corporate Tax, no income Tax. Tax land and properties a lot.

------
gaius
Google is investing £1bn in a new headquarters building in London. Seems an
awful lot, for a country where they make no profit.

------
vegancap
I'd rather see profits in the workers pockets than the UK government's
coffers. If we keep ramping up taxes on large corporations, they're just going
to move abroad.

Take Starbucks for example, they're not even turning over a profit in the
UK... yet they created thousands and thousands of jobs.

We'll keep ramping up taxes, they'll close down stores, move abroad and then
wonder why youth unemployment keeps rising.

~~~
GotAnyMegadeth
Genuine question: Is there any evidence that Starbucks 'created' more jobs
than it 'destroyed' through competition? I.e. It's not as if there weren't
thousands of people working for coffee/tea shops before Starbucks came along.

~~~
vegancap
I'd argue they brought coffee culture more to the British high-street. Coffee
shops were few and far between and the demand was fairly low say 10 years ago.

This also coincides with a lot of pub closures due to certain government
regulations and increased taxes on alcohol.

------
paulhauggis
Low taxes? I almost fell off my chair. With all of the rules, regulations, not
to mention v.a T. A 25% additional because we can tax doesn't seem very low or
fair.

If my company was having these taxes imposed on me, I would move all of my
offices and companies out of the U.K. within the next couple of years. I will
be interested to see what happens to the economy after these changed.

~~~
richardwhiuk
You'd have to stop selling in the UK as well - that's the point.

~~~
perlpimp
SWIFT transactions are pretty easy and establishing a network of professional
resellers should not be hard.

~~~
tormeh
Oh, so you propose a prohibition-style network of underground resellers and
whitewashing of money? You know that this way lies the need for a personal
army, a white cat and an Italian accent, right?

