Don't wanna pay taxes
Don't use the facilities e.g. roads.
eBay is not paying enough tax in the UK because it sells everything through PayPal Luxembourg. So the Sunday papers tell us, adding to the stream of stories about how Starbucks ain't payin' enough tax, Google ain't, Apple isn't and... well, we're being taken to the cleaners as a nation, aren't we? We provide this lovely country …
Corporations themselves do not use the road. The truckers do :) OK, kidding...
On a more serious note, in any case, the idea to remove corporate tax altogether is actually sane. They are avoiding it anyway we might as well stop trying to chase them.
However it must be complemented with unavoidable, blanket, uncoditional no-tax credit taxation on everyone, including the corporation owners. The real ones. The ones who have boats parked along the Antibes marina in Cote-d-Azur (mostly with British flags by the way).
Frankly, we are more likely to see Lucifer driving a snowplough to work than this happening.
Corporations use public roads, rely upon the Federal Government to enforce their copyrights and patents, benefit from police and military protection. People forget the reasons behinds those in early 1900's for calling corporations evil. They still are. Apple does not put much of its business overseas because of taxes as much as hiring cheap labor in third world nations to do their business. The people of the United States benefit little from the operations of Apple. Many other corporations are just as greedy as Apple.
In the 1950's when corporations and the rich paid their fair share of taxes, the US became the wealthiest country in the world. Now the upper 1 percent and greedy corporations are rolling in cash, the bottom 99 percent are suffering!!!
"But they benefit from their products and care".
Companies don't benefit from anything. Only the stake holders (shareholders and employees) benefit.
Those pro company tax seem to be trying to tax "rich fat cat" company owners, forgetting that they will be getting taxed when they draw dividends from the company.
But they miss the fact that company tax reduces jobs so also in effect taxes the employees too.
If you really want to punish the "fat cat" company owners then just increase the high earner tax rate. tThat makes far more sense.
> Companies don't benefit from anything. Only the stake holders (shareholders and employees) benefit.
By ditching corp tax, you add incentive to move shareholders (personal and corporate) to tax havens as they immediately gain corptax% extra income.
You're then down to trying to track how people re-import the money into the economy. They might just be sucking it all out and planning on living it up in Monaco or retiring to a beach somewhere. No tax taken at source, no tax payable later on. Or they might just be using a credit card, sipping small amounts of cash as they want it.
Now you've gone from a big lump sum (if slightly disadvantageous) payment from an easily identifiable source to tracking the lifestyles of individuals.
If you really want to people to do well, you need to clamp down on the mortgage market. Restrict the amount people can borrow. Mortgages work like taxes on income. Take out the house-price competition between purchasers - that will hurt a lot for existing owners, but in the long run, property prices will drop, people will have more cash and you can raise government taxes without taking food out of their mouths. A lower cost of living makes industry more competitive to do as workers need less cash to live and you can actually make things that people want rather than relying on financial and "IP" jiggery-pokery because that's the only thing that will fund your high-cost economy. Currently, 50%+ of income goes into inflatable house prices which benefits the banks (higher, longer borrowing). Its an unnecessary cost. Paying twice as much for a house doesn't double its benefit.
When will people learn that borrowing is bad? It is piling up future costs and eventually that bird comes home to roost. "It doesn't matter as long as we can service the debt," is an irresponsible attitude that pushes people far closer to the edge than they should go. House-price competition is a different animal to tomato-price competition and its evil to generalise to a theory and suggest its all the same.
Removing tax on corporations is regressive.
More tax on employee income, higher prices for consumers, less state spending.
That funds higher dividends to investors, those with private pensions and offshore interests.
Just another bubble to leach wealth fro many to few imho.
It's a choice. If you want an American system where you transfer vast amounts of money from lower income individuals to companies, then go ahead, this is the way. But explain your policy and let people vote for it.
It's similar to the argument that income taxes should be regressive:
A rich person uses services [roads, schools, hospitals, police] to a much smaller extent (relative to income) than a poor one. If you make say 5M a year there's just no way you use more than say 100K worth of government provisions so a fair tax rate would be 2%.
My personal view is that this is a strawman argument. I think the only reason you are making 5M a year and living in a relatively tranquil place, is because there's millions of customers that live in a relatively tranquil and well-run place. So the 50% (or 40%) income tax you pay (if you have a crap accountant, not hiding anything) is what allows your entire business model: you're buying an ordered society that lets you become filthy rich. [A possible alternative is a chaotic narcosociety where you can be even richer plus have a medieval power over the locals as well as be judge, jury and executioner; however you have a good chance of dying at a rival's hand, and you cannot travel outside your local powerbase or you get arrested and extradited to the US on trafficking charges... On the bright side, you pay no income taxes.]
The article's choice is with the "tranfer money to companies, then the little people who are stockholders benefit" camp, which is of course hogwash as you can only be stockholder with leftover money. Money you cannot count on to, you know, buy things or services (and hence let the economy grow), because stocks can go down or up at any moment; they're nest eggs that can turn out to contain either twins or nothing.
They do although indirectly.
The people who work for companies are assets just like the computer systems, buildings and machines used in those businesses. The health system provides for the people exactly what the maintenance companies provide for the other assets, maintenance services and support to make sure the company assets are capable of being used to allow a return on investment to be achieved through those assets.
Schools are like the people who create the computer systems, buildings and machines. They put out the items that companies will procure as assets in order to operate as part of the business.
Imagine what would happen if people didn't pay for software (or don't just read the register and see what they report on this subject).
It is important to consider all aspects of the issue and not the immediate links.
"Don't use the facilities e.g. roads."
In the US there's already taxes collected for that already. Between the states and the feds there are taxes on fuel, truckers vehicle registration fees, interstate tractor and trailer licenses and God knows how many toll booths and weigh stations. And that is still not enough to take care of the highways. Somebody doesn't know how to spend taxpayers money. More taxes will be just more money to be pissed away while still nothing gets done. Things can't be that bad in the UK?
I've shared a similar sentiment on this before. Get rid of corperation tax, increase minimum wage. Businesses still lose out on money to the people, and the people are actually far more likely to put that money back into the economy..
That and it still seems rediculous that I get paid the same wage to do a programming job out in the sticks as some highstreet shop employee with no education in London.
Vehicle Excise Duty and Fuel Duty are general taxes, everyone pays for maintenance and construction of the road network including those of us who don't drive a car or ride a motorbike. Vehicle Excise Duty hasn't been ring-fenced for road maintenance or construction since 1937 in the UK.
Now you know.
"Don't use the facilities e.g. roads."
A more useful facility provided by government for the purpose of taxing corporates is willingness to adjudicate contracts through the civil courts. Corporates and everyone else could be made to pay taxes based on money not legally transferring in respect of contracts becoming enforceable until a transaction tax is paid. A flat rate on each transaction could be taken by the financial service provider at point of payment, unless the recipient is a charity. This doesn't sit too well with continuation of use of cash, but the latter is getting as obsolete as the idea corporations shouldn't have to pay taxes because they can offshore if you ask them to. Corporations don't like handling cash anyway, so if the Tobin tax rate on transfer of payment is low enough (say 1% or less) this won't cause a large shift to using cash due to the security costs being greater than this for heavy cash users.
This would begin to rectify the injustice of the Forex dealer paying a tiny fraction of 1% on what he sells in taxes while the woman who cleans his floor paying 40-50% in taxes and loss of benefits for every pound she earns.
Dummies guide to economics - that will be the one that, like all the fucking economists, that didn’t predict the last few bubbles bursting.
Until economic theory matches economic reality - i.e. its not written by deluded capitalists who will blame everyone but themselves for the bust that matches every boom - you can take your books and use them as a cheaper method of heating than free market oil and gas.
...and they keep using economic ideas from the 1700s, with ideal little villages where there are 10 cobblers and you (the customer or worker) can just as easily go to another one if your regular one is misbehaving. Kind of hard to believe that type of thinking is still applied to another planet. I'm sure much else has been added to it, but still.
Also, corporations and capital can move around freely and much more easily than physical people. Might seem counterintuitive, but think about it.
And finally, if the EU corporations are not burdened by the costs of the corporate tax described, I imagine their workers must be better off there and the corporations' products must have a lower price (before sales tax, VAT, whatever) than in the UK. I don't know if that is the case, but I seriously doubt so.
Lots of people saw the bubble coming. Captain Capitalism who used to be a US banker was one I remember, but also Simon Heffer wrote often about the UK's infatuation with debt (gov, personal and corp) many times while people were saying how great it is to be 'high geared' (i.e. hold lots of debt, like private equity firms). Simon Heffer in particular expended a lot of column inches on Gordon Brown's policy of inflating house prices to make people think they were getting richer. Heffer seemed to have a personal vendetta against Brown in his prose, but his numbers were probably right.
But since markets are actually people, markets are not rational, so while people can spot bubbles through simple ratios very easily (e.g. house price to earnings, which could well spell worse doom in China than here), it's much harder to predict when said bubbles will burst. And you can tell people the sky will fall in all you like, but if they keep borrowing and bringing forward the moment of collapse, what can you do? In fact there's a certain logic about following the herd even though you know it could all go pear shaped at any minute, because it might not happen to you and if it does, everyone else will have the same problem anyway, and it's even better if you get to be 'too big to fail'.
American here (Texan in fact, but an Austinite, so all is forgiven) Markets are not people. Corporations are not people. This is a legal fiction intended to allow, well, corporations to exist per se. That said, yes, corporations can be insane. Hum, OK let's go with not rational. Less loaded. It seems that the Ayn Randian meme that corporations (and people, for that matter) will behave in their own best interest is something that has infected far too many people. Our best use of government is to keep things from behaving irrationally. That might even make for a good definition. I am not sure quite where I am going here, but I consider myself a fiscal conservative and a flaming social liberal. I think that Lincoln's Gettysburg Address where he states "Of the people, by the people and for the people" is the most concise definition of socialism that I have ever run across. We here revere that without having a clue (/sigh). Shouty just simply because I am probably screaming into the wind.
I voted you up for your second paragraph, but I have to strongly disagree with your first.
People always moan and gripe, the fact that a few people were berating others economic policies is not the same as predicting a crash. Neither is predicting a crash any more credible than astrology if it lacks real explanatory power.
Almost all economists and observers got it wrong. Some people were lucky and they attribute this to economic savvy, some people simply had better principles and money which meant they were going to be fine whatever, but the majority really had no choice but to go along with the madness.
People have their own economic cycles - it's called life - and some were positioned to benefit and get out, some couldn't get out and others couldn't get in.
The problem with bubbles is not that they burst, but that if you don't get in you are geared into relative poverty, because even when they do burst there will be many people that got out and lets face it, people only care about the rich.
Wow! I read Mr Worstall's article with interest and was swayed by his argument. But then, upon checking to see what El Reg's world-famous group of commentards had to say about the issue, I came upon your concise and thoroughly well-researched rebuttal which has completely changed my mind. Thank-you sir for preventing me from becoming misinformed about this complex issue which you have rendered so simple in my mind.
Yes, of course there is corporate legal personality. That's what a corporation is: a legal person.
And it very definitely applies inside the EU as well. It's actually been referenced in various directives and court decisions. For example, one of the reasons that a corporation can move domicile is because the EU says that both natural and legal persons have the freedom of movement.
Heck, I've actually got a little dormant company purely for the purpose (under the REACH regulations) of providing a legal person for the EU to sue if they should wish to.
I think you're confusing legal personality with the right to contribute to election campaigns.
The concept of legal entity status for a business is actually implicit in the terminology used: "corporation". The root word is (ultimately) from "corpus", the Latin word for "body".
The US even goes so far as to refer to "incorporated" businesses – "to form into one body".
All businesses are just collections of people operating as one unit.
It's a shame etymology is so rarely discussed, let alone taught, in our schools. It would certainly stop all these ignorant assertions that "businesses are not legal entities". They really are. And the reason for it is, in programming terminology, "code reuse": if you can define a business as a legal entity, all the laws that apply to actual people can be applied to businesses too, thus we don't need separate sets of laws to stop businesses going around murdering people with impunity.
Granted, that's not how it ended up: the UK has such a Byzantine mess of tax codes, it's clear that there are serious flaws in the nation's tax system. When a system is that complicated, with such a terrible UI, it's a sure sign that it's very, very broken and needs to be fixed.
Corporate Tax makes no sense in light of the above. Business never pay taxes, because they're just avatars operating in "business-space" and have no physical existence in our own universe. They are artificial constructs for accruing profits and making their owners money. Their owners pay the taxes. Said owners react to those taxes by reducing operational costs – e.g. lower wages; fewer stores; less investment in R&D, etc. – to make up for that overhead.
The LibDems used to tout an alternative that was effectively automated: "Everyone pays 10% on their income." Banks would handle it automatically: any income that came into your account would be taxed at 10%. That's it. No tax relief. No complicated bollocks. I think they suggested a minimum income level threshold, but that's just detail. VAT would probably continue too, but, aside from making a lot of accountants redundant, it was effectively a flat percentage system. Very easy to manage. Very easy to understand. The simplest UI possible.
Naturally, given how many of the current generation of politicians have an accountancy background, it was binned at the earliest opportunity.
Sean Timarco Baggaley "Corporate Tax makes no sense in light of the above."
I agreed with you up to that point. In the UK, a limited company is an entity that shares many legal rights and responsibilities of a real person e.g. own property, shares and other trading instruments, sue others, be sued by others, buy and sell property or services. The last part means that limited companies and real persons, can make profits and therefore, pay taxes. If companies don't pay corporation tax, it offers a potential avenue for individuals to avoid taxes - for example, a politician living in a property owned by an offshore company.
Even though corporations are legal entities, in Europe (and in most civilized countries with a half decent legal system) the DO NOT enjoy the same legal standing as a person.
This happens in the US due to corporate sponsored decisions by the supreme court which lead to the aberrations we see in America today. Where corporation have most of rights of a natural person but manage to avoid a lot of the responsibilities.
"In the common law tradition, only a person could sue or be sued. This was not a problem in the era before the Industrial Revolution, when the typical business venture was either a sole proprietorship or partnership—the owners were simply liable for the debts of the business. A feature of the corporation, however, is that the owners/shareholders enjoyed limited liability—the owners were not liable for the debts of the company. Thus, when a corporation breached a contract or broke a law, there was no remedy, because limited liability protected the owners and the corporation wasn't a legal person subject to the law. There was no accountability for corporate wrongdoing.
To resolve the issue, the legal personality of a corporation was established to include five legal rights—the right to a common treasury or chest (including the right to own property), the right to a corporate seal (i.e., the right to make and sign contracts), the right to sue and be sued (to enforce contracts), the right to hire agents (employees) and the right to make by-laws (self-governance).
Since the 19th century, legal personhood has been further construed to make it a citizen, resident, or domiciliary of a state (usually for purposes of personal jurisdiction)."
Which means they are practically useless. Correlation, not causation, etc.
It is exactly like saying: see, people who have the highest salaries tend to live in places where income taxes are low. So if we lower income taxes, the people living here will automatically get a salary raise.
Correlation does not equal causation, certainly.
However, that does not mean that correlations should be discarded.
A strong correlation between two things is indicative of a relationship, and could deserve further investigation to discover if there is, in fact, a causal link rather than just a statistical anomaly.
Nice table, love the waterfall effect that it has in the lower half but, and this I think is quite important, it is only a table with no explanation of the figures, has more asterisks than a French comic book and the methodology associated with the reported data is not provided. On that basis I think the the table is, in the context, of your argument useless.
"if our rulers are too stupid to write decent laws that can't be twisted then more fool them."
This one sentence illustrates the author's ignorance of the realities of virtually every biological system and mechanism in the world, since the beginning of time. Every creature (including us humans) on the planet is trying to out-perform, out-think, out-evolve and outwit it's adversaries and to say that laws should be written "perfect" is ridiculous. Or, to put it more simply: There's always someone smarter than you.
Laws will be twisted, better laws will be passed, more loopholes will be found. Repeat ad-infinitum. (Until the revolution of course)
Working within politics and I.T. over the years, I've read and heard my fair share of bollocks, indeed I may be responsible for some. I do have to say, though, that you should be proud of yourself. You have far and away exceeded any bollocks I have encountered or indeed been responsible for in my lifetime.
Unfortunately most of our politicians do think and write a load of bollards. Most of our media is as ignorant as the politicians and hence this country continues for many years on a downwards trajectory together with our EUSSR comrades. It's refreshing to have someone like Tim to help clarify the perspective.
Point is more accurately
"Google et al generate profits in the UK from the act of doing business in the UK"
So why is it fair that because they are headquatered over seas that they dont have to pay tax on the profits?
Or more correctly , the multinationals by doing this get a competive advantage over local rivals who are based in the host country, because the local rival has higher costs due to them having to pay tax on the profits.
But if these types of tax avoidance are legal, then all forms of tax avoidance should be used by everyone in the population.
I can foreesee the days when the TV is full of "Use us to avoid PAYE and NI taxes using our sure fire scheme and we'll only charge a 1 time fee for setting the scheme up"
But the real punch to the gut for anyone wanting to close these loopholes is that these loopholes will continue to exist because the lawmakers themselves use them to avoid tax.
tramp... because only us plebs have to pay tax
I agree to some extent but the fact is that this country has been mis-managed for decades and without incentives to bring in foreign companies, hence employers, we would be in far worse straits than present, like Greece. Multi-national corporations do get away with too much, but this kind of ignorant media hysteria will simply scare off foreign investors and we have beggar all money left of our own to invest in re-building industry.
Put another way we need to learn not to bite the hand that feeds us!
"So why is it fair that because they are headquatered over seas that they dont have to pay tax on the profits?"
Amusingly, the very people who are complaining about American companies Google and Amazon not paying tax to the UK are arguing the opposite for Vodafone ("dodging £6bn of taxes") - demanding it pay to the UK taxes on money it earned in Germany selling phones to Germans. And I'm sure that there are lots of the same type of people in America who right now are demanding that Google and Amazon pay tax in America for money they earned in the UK.
Anyway, if British companies want to compete they should move their headquarters to Eire. And/or lobby the government to reduce corporation tax - because we know (if we actually read Tim's article) that the burden of corporation tax generally falls on the UK employees and UK customers anyway.
and of course everyone who has looked for a CHEAPER price on a VAT eligible item is also 'guilty' of tax avoidance.
For those who don't get percentages; or understand the real world :
cost £120 - tax paid @20% VAT = £20
find the same bit of kit for £60 then tax paid = £10
guess what if you buy the cheaper offer you have just AVOIDED paying £10 of tax; you evil nasty vicious barstard you
Aren't the politics of envy wonderful ?
Boris, I think you are missing the point - tax systems are about raising revenue not about being fair.
Governments want to raise revenue to do spend on things they think will get hem re-elected, but they have to do this is the most inoffensive way - or they won't get re-elected. Probably the "fairest" way to generate revenue would be consumption taxes (VAT etc.) because richer people buy more stuff and will therefore pay more tax, but this has lots of other knock-on effects - the biggest of which (in the eyes of the politicians) is that the people who enact such a tax get roundly villified (although the other political parties seem awfully fond of the taxes once they get into power).
Biting the hand that feeds us???
are you for real? we feed the hand!
they are operating in this country because thay want our money.
so long as profits are greater than tax, then they'll stay.
thats how it works. at present they have political clout so bitch about how much they pay. with a strong leader prepared to say STFU and pay the vig, capeche. they'll knuckle under and behave.
When did it rurn into Fox News?
It's the usual 'taxes noooo - no jobs' bollocks beloved of the nutjob ranty right in the US.
Thing is, corps in the US are swimming in cash, productivity per worker is up, up, up, but are they hiring and offering decent wages for highly skilled workers?
Are they fuck. All the money gets skimmed off in insane CEO and executive 'compensation'.
And let's not forget that the 50s and 60s had epic tax rates on the rich, and were both inventive and far more prosperous.
So you should just fuck off, kthx.
Yes, and the 50s and 60s had massive methods for avoid taxes to protect income and profits. Raise taxes further and you'll see many of those options come back in style.
If you were a company owner and the fuckwits that pass laws were sending you all kinds of crazy, conflicting signals about what tax laws were coming in the future, are you so insane as to hire more and spend all your profits? Or would you sit on your cash like all these companies are doing, investing what you can to fight inflationary concerns, until such time that it's advantageous to start spending capital again?
Think, then speak.
Absolutely typical comment, full of anger, spite, and ignorance. Not a single commentor who opposes this article has put forward a single useful data point as a counter argument. They've all been like this one "wah wah wah, nasty corporates aren't paying enough", not a logical fucking thought amongst the lot, no wonder Britain is rooted.
Let's hope not all companies in the UK take advantage of this 'moral' tax arrangement, in the same way as eBay and Starbucks et al.
Because then, everyone will have an extra few pounds in their pocket and coffee will be cheaper, but we'll just about bankrupt the country and leave ourselves defenseless too.
And change our name to Greece. though I see a lot of apparently British commentators all ready spell in American or use American examples. Perhaps we would be better off being Greece.
By the way, the author is a bit silly. Does he really believe the less taxed profits get spent on better salaries for British workers? The few actually employed n Britain that is or even the EU (at least we have got free access to work in the EU). I note how well British employers paid most of their employees in the good old days of Victoria and before when I suspect corporation taxes and wealth taxes were somewhat minimal.
If a firm takes full advantage of a country's infrastructure, (healthy employees, rule of law, peace, legal system, educational and training system ...) I can not see that it is wildly, evilly "lefty" to expect a direct contribution to that country and its people. That does sound a little like right wing capitalism I suppose: you want it, you pay for it.
I can half accept the EU thing, as the EU does a lot of redistribution, sponsors projects all over the place and all citiszens can treat it, for working purposes (even for health and education to some extent) as one, large "cantonal" area. But the idea that an USA or Chinese or similarly-based company can come in, grab an advantage over local industry and so harm us in the long term, bugger off when times get difficult here or at thome, take inducement grants from our begging bowls to do us the immense favour of ripping us off .... Grrrrrrr.
Such articles are interesting, spineless pontificating because the author does not know what to do about it or see beyond the economic theory in a world in which, as someone else pointed out, economists are rather good at being wrong rather often.
so employing some one is not directly contributing to the state's coffers ?
Lets see; average COST of employing someone in the UK is TWO to THREE times the salary paid to the worker.
Direct state payment by the employer that can NOT be avoided :
Employee's NI contribution
Just those three alone account for 30 to 50% of the employee's actual salary.
Then there is the indirect taxes :
Tax paid on renting/buying property for offices
Tax paid on services :- gas; electricity; water;
Tax paid by those providing services : cleaning companies; security companies banking; accountants
(Tax paid eventually on the money spent bribing/lobbying/influencing the politicians)
etc etc etc
And last but no least the VAT paid on MOST transactions made by people paid (directly or indirectly) by any company employing people in this country
So it is a load of bollocks to contend that a company trading in this company does not pay a large amount into the state coffers. It is normally lefties who can not understand any of this.
Income tax and employee's NI come out of the salary, so 30-50% is not added on to the cost. Nice bit of double-counting there.
Any VAT paid on furniture, computers, software, energy, etc. etc. is recouped by the company. Companies effectively pay no VAT.
And you can't consider taxes paid on monies that the company once paid out as taxes paid by the company. Otherwise you may as well say all tax is ultimately paid by companies, and completely ignore the individual's contribution in terms of effort. Companies get value from all the things they buy, and that value is not taxed until it shows up as profit ... which is the problem with these tax avoidance schemes. The effort made by the individual is taxed yet again when he spends his salary, but that is *his* contribution to taxation, not the company's, thank you very much.
Remove all those taxes which you claim companies pay as costs, but which they do not, and what of your argument remains valid?
"It is normally lefties who can not understand any of this."
I run a very small business, so my turnover is not large enough to make it worth shifting profits into another country, BUT if I was large enough, of course I would do this, it makes sense for shareholders & for customers, I would be able to keep prices down, increase turnover & improve my business, thereby increasing profits & increasing dividend payouts... I.E. at the end of the day I would get more money, and I could pay my employees more.
No corporation tax? Really?
As for the morality ( because that is what you are arguing...an opinion and not fact)s you can take your Randiod bollocks and shove it where the sun don't shine.
Your 'article' is one of the most pathetic sophomoric pieces I've read in a long time. Even UKIP policy papers contain more intelligence than the tripe you're peddling.
The problem is that this just isn't Randoid bollocks at all. This is absolutely straight, middle of the road, simple economics of taxation. It's not left or right, liberal, conservative, communist or Objectivist.
This really is straight textbook stuff. Corporations don't pay tax: some combination of shareholders and workers do. Corporate and capital taxes have higher deadweight costs than income, consumption or property taxes.
Within economics this is about as controversial as pointing out that The Sun is a star is in astrophysics.
Can't comment on the UK tax code being from the other side of the pond. However, all of this nonsense with proles trying to defend the rights of corporations reminds me of scenes from the show Tudors. It shows a complete lack of understanding of how businesses are run and how the tax code already favors them. The poor and powerless are desperately shilling for the high and mighty and the King.
I agree with the main thrust of the article but it needs more detail on why taxing companies is counter-productive.
I would have liked to have seen some depth on how not being taxed gives companies more scope to invest (more IT, buildings etc = economic boost), hire more people (less unemployment) and stuff like that. Without the meat to your argument people who haven't listened/read Friedman or Hayek et al will be genuinely confused about how it could be a good thing not to tax companies on their profits.
OK, it's not specific to the actual company being taxed. It's because returns to capital are being taxed. Thus less capital gets invested in any specific tax jurisdiction that taxes the returns to capital.
So, because we tax (say) BP's investments in the UK then all, yes all, UK wages are fractionally lower.
It was actually Joe Stiglitz (not a right winger at all) who pointed out way back in 1980 that this effect could be greater than 100%. That wages fall by more than the amount of tax raised. Maybe.
My issue with this theory, as much economic theory, is what's to say that the money left free from having little or no taxation doesn't just get held offshore in rich bastards' accounts? i.e. it doesn't re-enter the economy in any meaningful way as you'd hope (wages, spending, etc).
"Rich bastards" will get taxed, rich companies are not the same thing. Dividends from the company to the shareholders would also get taxed.
But, assuming the "Rich bastards" in question were operating in a free market then they will have become rich by providing goods and services that consumers actually want, at a price and quality that the consumer has found fair in an equal trade according to the value the consumer places on them. They might still be bastards, but that's their right as free human beings, as is your right, nothing to do with the company.
Your point is good though, what if they just take the money away and hide it offshore? Well firstly it's their money, fairly earned (again assuming a free market) so they can do what they like with it. If they hide it in a bank then they effectively remove that money from the money supply in the system, which will have the opposite effect of the Bank of England spunking money all over the economy i.e. deflation - prices going down. I can't see that being a problem.
But let's be honest, the issue most people have has fuck all to do with economics or tax - it's jealousy.
"Whereas those of us familliar with Hayek and Friedman, recognise it as such and know it's bollocks from the get go :-)"
I refer my right honourably friend to the "Fight of the Century: Hayek vs Keynes - Round 2" :)
Hayek CLEARLY won, we was robbed etc etc...
You need to license your company name and logo from a Luxembourg head office and buy exquisitely priced computers, hard drives and blank DVDs from a specialist Swiss supplier. I'm sure the tax authorities would accept that way of working.
The again, they might jump up and down on you with hobnailed boots. Do you run a very, very big company?
It depends how much money you have for lawyers.
If you are a small company with small profits, the tax won't be much, so the potential saving is really small. If the Inland Revenue query your accounts, you have to waste a week of your time (when you should be earning money), you have to pay a grand or so to an accountant, and you run the risk of huge penalties that could bankrupt you (with associated stress while the investigation is happening). So the rational decision is to pay up.
If you are CEO of a huge company with big profits, you can save millions in tax. And if the Inland Revenue query your accounts, you give a few million to your legal department to fight it. They can buy better lawyers and accountants than the Inland Revenue, and even if you lose you probably settle out of court for the amount of tax you would have had to pay anyway. There's no personal stress - you're unlikely to get fired for this, since you can probably find an advisor to scapegoat, and you have a golden parachute lined up anyway. So the rational decision is to avoid as much tax as possible.
This is why the Inland revenue has decided to stop going after the extremely rich people who run tax avoidance schemes, and go after their slightly less well-off customers.
I was chatting to a customer of mine who is a well regarded tax accountant. He was telling me that the large corporations literally hang outside the door of the HRMC after their latest batch of tax inspectors have qualified to then snap up the top ones as soon as they walk out.
Offering several times what HMRC pay its not hard really.
You don't even have to be hired by Google. You can be an independent accountant and still make out like a bandit by fleeing into the private sector. Mine is an ex-IRS auditor. So some of the skills do trickle down and are available for "the little guy" to take advantage of.
The tax code is much easier to personally exploit as a "non-employee" than a member of the Google collective..
Why the feck would they wait to "snap-up" someone dumb enough to work at the Revenue in the first place? They take graduates with good degrees from top universities and train them the right way from the start. If you get a job as a trainee civil servant you have failed the first recruitment test.
Ever heard of 'knowing what the enemy is thinking"?
Doesn't hurt to have folks under your wing that are fully trained in the latest techniques of your enemy.
Plus if you remove the best folks they have that cripples them even further.
Not much of a strategist are you? Failed the Army Officer exam then?
So you're saying. Big companies can play the tax-avoidance/tax-compliance game while small business and self-employed workers can't and it's all okay!
First of all. I agree that taxes are (mostly) paid by the local residents of said country. Some European countries have +20% income through sales tax/VAT on EACH and every product that's being sold. So saying that no taxes are being paid is indeed wrong. YOU, the consumer, pays most/all of the tax on that Starbuck's coffee. Like I pay +53% taxes on a liter diesel :-(
That should be enough!
But governments are run by incompetent bastards who take the easy way. They just knock on your (residents) door and simply ask/demand more money. The kind of thing you did when you where a teenager and wanted a sunday-allowance to go out with your teenager girlfriend.
The problem is not the corporations but the governments not knowing how to make ends meet.
"I have a company and I've been paying tax"
You've not been paying attention though, have you? Tim's article is about who bears the burden of the tax. Is it your company or is it you the owner of the company? Clearly your company can't bear the burden because it's not a person - it's you because you own it (and possibly it's your employees because there's less money in your pocket to re-invest in the business).
You - like so many here - are confusing the entity who cuts the cheque to the Revenue with the people who bear the burden of the tax. For example, companies cut the cheque for VAT to the Revenue but is there anyone who seriously suggests that it's not the customer who is bearing the cost of the tax in the form of higher prices?
You really need to pay attention to what someone says and not just run off at the mouth because what the headline says upsets your world view.
rubber & glue much???
so no tax means higher wages (yay for us!)
no tax means no govt spending...
fire insurance (thats just to put it out, not recover afterwards)
crime insurance (thats just to get a copper onsite after i have been robbed, not to recover afterwards)
heath insurance (thats just.....
education insurance (see above...
employment insurance (I'm sure you have spotted the patttern by now
having to learn to speak german/russian/chinese after the various invasions
getting (even more) fucked by the banks - no regulation
suddenly im not feeling quite so well off anymore.
but dave starbuck is minted so thats okay
Finally a sensible article on tax. I don't agree with every point, but not having it all wrapped up in a load of hyperbole is a nice and refreshing change.
The main issue with this article is that it assumes that tax is the only issue at stake here (i.e. raising of revenue). The main issue as I see it is that, as the law stands today, a company that has the means to do this cross-country faffing about, is naturally more competitive than a smaller company that does not. The small companies, which do have to pay the tax, end up less competitive and they starve and die. Given that these small companies are the ones who employ the most of the workers in the UK that should be a worrying trend.
By all means we should change the law - corporation tax on large companies has to be a fair reflection of the global market and unless we change something they are all going to move overseas (many have already) - but until that point we need some means to defend the "little guy" or we end up with no tax and ever increasing unemployment as everyone buys things from "Luxembourg Plc".
One footnote to the effect that if any system does tax profits without taking into account where the money is spent any taxation system is doomed. These kind of "financial shelter corporations" don't need to employ people and are often little more than a mailbox. They can therefore relocate anywhere in the world.
Assuming "Country X" needs to raise an amount of money proportional to it's population, then a country with a low population count can naturally set an exceptionally low tax rate for any new companies it attracts, because it's overall financial burden in real terms is very low due to low population. It doesn't need to tax, and any tax it gets is "free money", so it can set a tax rate of only a few percent.
I think most readers are missing the point of Tim's article. He's not arguing for less tax (necessarily), he's just arguing that corporation tax is probably the wrong way to do it. Increasing sales tax would, for example, work just as well. It naturally applies equally to all companies, and takes into account location of sale, not location of the mailbox.
Instead of trying to chase and tax those elusive profits that can be moved around internationally, just tax expenditure - don't allow claiming back of tax on certain goods or services... shop rent, ingredients, furniture.
Of course the article is right in one respect... corporations never pay tax... any tax they pay (such as on goods or services) will be reflected in a rise of the product they sell - customers will pay it.
Perhaps we should forget taxing corporations at all and simply focus on removing their rights - removing rights to be treated as 'people', removing rights to own 'intellectual property' (make them license it from the original creator-person), for a start.
No, it will be reflected in three things: the price customers pay, in the wages of the employees and the returns to the shareholders of the company. The mix of who bears the tax will vary depending on the market, the bargaining power of the employees, etc. Given that who pays is a fairly random happenstance, taxing companies is a very blunt instrument indeed. Surely if you want to hit employees or hit shareholders or hit customers, it's best to shape something to achieve that directly rather than hope the random tax incidence is what you wanted?
I think that commentard meant "make it impossible to assign IP to a corporation, and make sublicencing illegal".
In other words, the original inventor/creator human(s) can (and often would) license it to their employer for the nominal 1 penny, but that employer cannot then sublicence it to any other entity.
It's an interesting concept, although it will never happen because too many corporations (Disney et al) are dependent on the current way that licences can be bought and sold.
If it was true, those companies should pay much higher salaries to their employees than companies that have to pay local taxes. They don't, and often they pay even lower ones, while offering worse work conditions. Because their are built not to offer more to their local workers - while shareholders are often not local - but to move money away as much as they can. Product prices are often kept low more because of lower running costs, than because they don't pay taxes locally.
Moreover the article fails to notice several things, for example salaries are a cost from the company perspective, and thereby are not taxed at the company level (taxes are paid by the employee, not the company). thereby there is no correlation on company taxes and salaries.
Anyway I think government should start to charge more for utilities used by company who don't pay tax locally. Do you need water for your coffees? Ok, it will cost you more. Do you need roads and vehicles to deliver your products? Ok, it will cost you more. Do you need police to patrol and firefighters to ensure your datacenter is not destroyed? Ok, it will cost you more..
"If it was true, those companies should pay much higher salaries to their employees than companies that have to pay local taxes."
It doesn't work that way. Imposing tax on returns to capital means that less capital is invested in the economy. Less capital invested means lower productivity thus lower wages.
It *does not* work at the company level but at the level of the whole economy.
"...should pay much higher salaries to their employees..."
Which is actually the root o/t problem. Salaries are the first post of taxation. E.g. In Belgium taxes on salaries start from about 40-45% while taxes on business profits start about 25%. So you'd better keep the money IN the company and let tsome profit flow back through other means, like bonusses, company paid assets (cars, houses etc..). Unfortunately these things don't filter through the common work-floor but get stuck on the upper management floor.
And then somebody 'leak' an article saying how corporation 'avoid' taxes while it are the money-hungry governments who should learn to make ends meets with the resources they have!
Do you seriously think that other people far smarter than you haven't actually considered and then rejected these points? What is it with people today that think that expertise and a lifetime's study count for nothing compared to the "I reckon" witless opinion reached in mere moments?
I can understand the argument, sort of. What's the solution? Removing rebates and raising taxes on dividend income? Would that work?
On a side note, something needs to be done about companies not paying realistic wages and expecting to public to make up the short fall in tax credits and benefits to low income households. There's something twisted about hugely profitable companies whose employees need state benefits to survive.
"I can understand the argument, sort of. What's the solution? Removing rebates and raising taxes on dividend income? Would that work?"
One logical structure would be to simply abolish corporation tax altogether and then tax dividends and capital gains to investors in companies at standard income tax rates.
"One logical structure would be to simply abolish corporation tax altogether and then tax dividends and capital gains to investors in companies at standard income tax rates."
Perhaps, but those companies are not headquartered here, so we can't do that and we'll get zero benefit. I think that a sales tax might work.
You can, Frank. Any investors in these companies in the UK would be taxed on their investments in the UK. The same would apply to other countries.
No matter how many layers you put between yourself (as the investor) and the investments, eventually, you as the individual need to pay tax. Not drawing down on your investment goes against what an investment is supposed to be... taking your assets (money) and making more.
Except you don't want to tax investment: it's what produces economic growth which makes everyone richer. You want to tax what has the least deadweight cost.
Tax isn't there to punish groups of people, it's there to raise money for government to invest in things that couldn't otherwise be invested in by private individuals or collectives.
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The burden of the tax falls on shareholders, employees and customers in a varying mix. If you want to tax these groups, then do it directly where you'll know what the impact will be rather than let the happenstance of the structure of any particular marketplace choose where the burden falls. Yes, that might mean dividend taxes (though Tim covered this in the 'deadweight' argument).
As to the "realistic wage" - what exactly is this? Wages aren't set so that we can all enjoy X-boxes and a three bedroom house. They are set based on the economics of what is produced by the job. If the value created is low no company would every pay a high wage. If the market for the skills is tight then the employee can capture a large share of the economic value (look at premier league football where the employees - the players - have captured the lion's share of the value).
Investment raises the economic value of an employee. One who drives a forklift is much more productive - and the value much higher - than several who manually lift sacks. If the return on investment is low then there's no money to buy a fork lift and the wages for sack-lifters is low because the value each creates is low. Taxing investment retards investment which stops productivity growing which retards the value produced by an employee which retards the growth in their wages. This is what Tim was talking about.
Surely by paying benefits to make up for low paid jobs reduces the value of those jobs further?
IE if there were no tax credits or benefits to make up for the income gap then these employees wouldn't be able to afford to work there, the company would in turn find it harder to recruit and then would in turn be forced to increase wages.
Am I being naive here? I didn't study economics.
Companies should pay tax where there headquarters are or base of operations are. Regardless of where that is. This constant tax avoidance by locating them self into tax havens has to stop.
Companies should and need to pay there fair share as the public does. Everything else is just unfair and is going to increase the tax burden on the rest of us. Everywhere.
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Personally I'm all for companies with operations in this country not paying taxes as long as they are paying decent wages to the staff. Unfortunately many companies that make a great deal of money here are dead set on shipping all the work overseas, and in some cases paying such low wages that their staff are reliant of working tax credit, housing benefit etc.
Ok I get that, but it's when obscene profits appear as a result...
There should then be an annual points of percent tax on total global profits paid to each country hosting a branch. Giving it to the govt means it's sure to get spent somewhere more creative.
Cash hoarding corporates or wasteful governments?
Dividenst already GET taxed.
In fact in Belgium earning on intrests get taxed from 15% (upto 2011) to 21% (from 2011) (which is an increase in taxes of +30%) and above a certain amount of interest you pay 24% taxes!
Don't believe the propaganda that rich people pay no taxes at all. They do. But as taxes increase gradually with their big income they try to avoid these increase.
In my example salary taxation in Belgium starts at about 40%. So if you earn 2000 euro gross in wage your net salary would be 1200 euro or 60% of your gross wage. If you earn 5000 euro gross then taxes are about 55% and your net salary is about 45% or 2250 euro. Gross wage is 2,5x yet net salary is LESS then double.
THAT is the problem. If I'd earn 5000 euro gross then I expect to have 3000 euro net (60%/40% divide) not the other way around. So it's obvious that I will find ways to get that +700 euro back that should have been in my wallet instead of in the wallet of our prime minister.
Plus there are so much things that have taxation. Even if e.g. you get your company car. The company or the employee has to pay road-taxes, taxes on petrol, VAT on repair and maintenance, yearly mandatory car inspection etc...
So in the end it doesn't matter if the corporations seem to avoid paying the big corporate tax, in reality they pay a dazling amount of small taxes (like all of us do).
Don't believe all the propaganda. Especially not on El Reg ;-)
This is the mentality that allows politicians to flip houses by renting them to each other. It's not specifically prohibited in the rules so therefore it's OK. There's a spirit of the law and a letter of the law, and just because a company or a person is rich enough to be able to operate out of Luxembourg doesn't mean it should be allowed.
The fact that the EU continues to allow it just shows what an insidious organisation it is. Being on the referendum.
The tax bill for the small company I work for was £69,000 for last year (and that was a very quiet year). That's up to two salaries being eaten up by taxes. If Starbucks, Google, etc paid more of their fair share maybe smaller companies could finally be given a break on taxes.
I suppose the counter argument could be that if Apple, Amazon, etc started paying more they would have to increase prices which would negate any additional spending power afforded to employees, but given the obscene cash reserves of these companies and the vast sums the executives earn it seems they could easily afford to sacrifice some profit margin.
Don't get me wrong, I'm not the socialist type who thinks taxing everything is the answer. I'd much rather see lower taxes overall than the current mentality of taxing everything that moves. However, there are rules on taxes and I want to see them obeyed fairly across all businesses, rather than the current situation where large business can afford to avoid all tax responsibilities increasing the burden on smaller business.
The Reg is good at covering technology. Like many specialist publications it gets weaker the further it moves away from that.
Arguing that corporations don't really pay taxes because taxes cause them to make decisions which have a knock-on effect elsewhere (on wages, profits or cost of goods depending on elasticities) is silly. All taxes distort the market and cause knock-on effects, but I assume you don't plan to argue that employees don't pay income tax just because some of it ends up as higher wages.
The key things here are twofold:
1) Taxes need to be raised somewhere, and most people think it's reasonable that corporations which make use of public resources (an educated populace, the police and fire services, public infrastructure) pay a share of that. The ones who think it's unreasonable rarely argue that those corporations aren't really paying taxes unless they've just finished reading an A level economics book.
2) If corporation tax is not abolished entirely (and trust me, that's not about to happen), then multinational firms which report profits in low tax regimes while doing most of their business in high tax regimes are clearly gaming the system. Tax regimes are still immature in dealing with globalisation, and they need to catch up. It's clearly unreasonable that companies which operate wholly in the UK and pay tax here are at a disadvantage to companies which do the same quantity of business here but report all of their profits in Ireland (for example).
I'm all for a sensibly competitive rate encouraging firms to set up and employ in the UK, and I'm fine with companies that make and support things abroad selling to UK consumers (though if they provide a poor service as a result then they won't sell much), but having corporate come over and cosy up to government in order to have favourable legislation written (looking at Google in particular here) while simultaneously fiddling the tax system then that's clearly not sustainable.
That is exactly what they are doing. Buying and selling beans and building a brand are the most important elements of Starbucks business. They are the elements that incur the biggest risk. The location they perform those tasks are where they pay the tax.
Just because people fail to grasp how a business does business does not mean a company is somehow gaming the system.
I totally agree with this article - there are so many people out there who don't understand taxation and listen to titles such as "Company X paid only £1.50 tax on 10 squillion revenue" and go "OMG, that's a really low rate of tax".
Get rid of corporation tax and move it onto dividends I say, it's stupid tax.
Although not quite as stupid as stamp duty :D
A corporation is, by definition, an entity granted (a subset of) rights and responsibilities of a natural person, and thereby becomes a "legal personality." The use of "person" in a legal context does not imply that natural and artificial persons are equivalent in all instances: even American law does in fact make distinctions between a natural person and an artificial one. The use of "person" (or "personality", "individual", etc.) to describe corporations in legal context was used in British law before the US was the US. The whole point of the author's original sentence was merely to be explicit in that he is speaking of natural persons and thereby side-step a pedantic squabble based on legal definitions. Apparently, in this he has failed.
So on the topic of " just shut up generally and let non-extremists talk about tax in a grown-up way", I suppose that you have some sort of economic critique that you were planning to make?
"Various tech companies sell into the UK from outside the UK. They book their revenue outside the UK, make their profits outside and thus no money is levied"
I think you meant -
Various companies sell and have a physical presence in the UK but construct their business so that, for tax purposes, they are able to book their revenue outside the UK, make their profits outside and thus no UK corporation tax can be levied, unlike the majority of ethical businesses operating in the UK.
Nice article, it's a shame you didn't go into the corporate structure more, or explain why corporate taxes are bad in detail. It was fairly nice to read though. People in the comments section here, well, they clearly have no concept of how the real world works. It's a shame, but there's little to be done about it.
All corporate profits don't go to stakeholders, employees, R&D, no, in the end they go into the big fat pocket of the company owner! That's why all of those people work for those companies and invest money into them, so that at the end of the day the monopoly man can get his compensation! Nobody sees returns and new technology is never created by the power of corporate profits, nor do employees actually get paid, it's all just eaten by a man with a top hat and monocle that we should stick it to! Yeah! With taxes!
They can only respond with "Bullocks", "Lobby group?", "Paid off", "Republican" and whatnot. No counter-point, no concise argument, almost no logic at all. It's all emotionally driven drivel.
It's as if saying a tax in any form actually harms real, living people and not just the monopoly man is equivalent to dark age blasphemy. People really refuse to acknowledge it, it seems, in this day and age. Taxes are only to be created, increased, possibly decreased if it adversely effects a portion of people they don't want it to effect but they never, ever consider the consequences of a "bad tax", there's no such thing, after all. Taxes can only do good.
This is a terrible article that uses sophistry to justify the unjustifiable. Firstly, your argument that corporations don't pay tax doesn't actually make sense. I run a company that trades internationally and I can tell you unequivocally that we do pay corporation tax. The fact I can shop around to pay less makes not one iota of difference to my companies legal obligations in whichever country we trade in. You can argue that this is passed on to customers or shareholders but the legal responsibility and debt lies with the corporation.
Secondly wheeling out the usual Tory nonsense that forcing these behemoths to pay their damn way will force them to leave and destroy jobs just doesn't cut the mustard anymore. As soon as I opened this article I knew this would be the crux. How predictable, not to mention offensive. The little man has public services slashed, gets sent to jail if he doesn't pay his tax but we are effectively compelled to subsidise these corporations out of our own damn pockets just because, well, they'll piss off to somewhere with a even laxer regime? Let them become pariahs then. People are dying from benefit cuts, literally. Time to face down these sociopaths. If I can pay top f*cking rate on my earnings and my companies profits, running into millions over the last twenty years, then they can too, simple as that.
And whining about leaving these shores reminds me of all those greedy IT contractors paying less tax than a cleaner, bleating about moving abroad. How many actually did? Not many. If you can't pay your way here then we don't need parasites. The world is in recession, the centre cannot hold.
I also understand perfectly that governments have not regulated business enough. Look where that got us. But I reject the offensive notion that business should always take an aggressive, sociopathic view to exploiting this. It's obvious who runs things and that is why protests are taken straight to the organ grinder rather than the monkey. Make them pariahs. Pay your damn taxes.
I like TIm's article as far as it goes, I'm not sure I agree with all the points, but it touches on what I think is a big flaw in EU taxation co-ordination generally, i.e. that there is no co-ordination and we have enacted a principle in law that more or less garauntees inequity between member states.
So you can trade anywhere in the EU and book your taxes in the lowest tax rated country, (who get to keep your lower tax expenditure), thus upsetting everyone in all the other member states whose population have contributed to your profits.
Arguably a far more equitable mechanism would be to have a uniform EU corporate tax rate (actually this bit alone woudl solve some of the arguments), and for that to be paid centrally to a EU taxation agency and then distribute the income between all the member states (this is the bit that would be a nightmare to agree and implement).
However none of us lives in a federal uptopia and it's highly unlikely that any of our countries will actually agree to this as every state has it's version of UKIP who would demonise such a suggestion as "giving up powers to Brussels".
>This is a terrible article that uses sophistry to justify the unjustifiable. Firstly, your argument that corporations don't pay tax doesn't actually make sense. I run a company that trades internationally and I can tell you unequivocally that we do pay corporation tax.
I think you missed the point there.
"I run a company that trades internationally and I can tell you unequivocally that we do pay corporation tax."
Bless. You didn't understand a thing here, did you? I'm sure you pay the VAT over to the Revenue too. Do you claim that you're suffering the burden of the VAT? Perhaps you are just bright enough to understand the concept of tax burden and that it's the customer that bears the cost of VAT. The same is true of corporation tax: you might cut the cheque but it's other people (real people) that suffer the burden. That might be you as the owner (i.e. the shareholder). Or it might be your employees who suffer lower wages because of lower productivity because of lower investment because of less money to invest (do you understand how that works, or are you going to reject what evidently smarter people than you over decades have worked out?)
VAT is taxiing consumers, it makes prices higher and increases the inequality between incomes. A progressive tax on wages decreases the inequality, but it makes labour more expensive, thus contributing to unemployment. Increasing corporate taxes reduces the amount of profit that goes to shareholders, who may live far beyond the national borders, and instead keeps in in the hands of government, where it contributes to wellfare and economic growth.
economic growth is not all
open your mind real wide (as if)
maybe, just maybe rotherham would be a slightly better place with a few more social workers, and maybe rotherham council could afford it if starbucks PAID THEIR FUCKING TAX.
just an opinion thats different to yours thats all!!!
'cept im right and you are wrong of course :-)
The aspect of this that annoy me is the huge effort required to set up these schemes, and how that makes it practical only for the largest of companies.
If you're Amazon/Starbucks/Apple etc. you have such an enormous turnover that it makes sense for you to pay $millions to lawyers and accountants to set up systems that will save even some tiny fraction off your tax liability. If you're a small company or sole trader, even if you could in theory set up a network of off-shore companies it just isn't worth the cost of doing it.
Yes, there are many examples of economy of scale and this is just another one of them. But I would prefer government regulations to provide a level playing field for businesses of all sizes.
The corporate structure offers a liability shield for the owners.
If I own a business that's not incorporated, and hazardous chemicals leak and cause $10 million in damage and the business is sued, I'm personally on the hook for that $10 million. Even if the business has never and never could give me a fraction of that in profits. Basically, I'm ruined.
If I own that same business but it's incorporated and gets sued, they can't touch my personal assets. They can liquidate the corporation, but that's the extent of my liability. I pay for that protection in the form of the double taxation of profits, first at the corporate level via corporate taxes, then at the individual level through taxes on dividends (I'm ignoring S corps in the US, since they are a sort of hybrid)
While I agree with most of what you're saying, if you let corporations pay no tax then every doctor in the land will incorporate himself tomorrow and quit paying malpractice insurance. After all, the worst that can happen is losing the practice, and so long as he's careful to make sure he owns the building/equipment personally or in another corporation that leases to the practice, he has little worry about being sued and pockets what he used to be paying the insurance company. He still pays taxes on dividends, but even if that rate is raised to that of normal income, he'd come out ahead. If that rate stays lower as it currently is in the US, almost every worker would be better off incorporating himself. And his employer would probably let him, as it would be a way of giving him a raise without costing any more.
The only way this will work is if dividends (and stock buybacks) are taxed at a HIGHER rate than personal income, to account for the liability shield afforded by a corporate structure. Because while you could imagine a single person corporation having the liability shield pulled away, it would be rather impractical for a company with many many shareholders like say Ford or GM, especially when most of them hold their shares indirectly through index, mutual and pension funds.
I think that for a person to be spared the perils of being personally liable for a business act harming consumers, the public, or employees is to have no finding of greed or personal gain being the root cause of ghe act or acts for which you s/he is being sued. If a business owner shoots someone even in the defense of the compsny, he or she might be liable for injuries or deaths if it is found that owner or some exec doing the shooting acted like a sort of Rambo, raining a hail of battlefield fire when a stun gun or 2 bullets would have been sufficient. (Scenario: say an employee goes postal, either in a postal facility, or a typical, small office.)
If an exec directly orders or issues directives to dump chemicals into the river behind the warehouse of factory, he or she should have NO protection behind the corporate veil. Well, at least not since the past 15-25 years.
Anyway, as to the url, the info in the legal dictionary seems pretty interesting reading.
The argument made here is that "Tax on corporations isn't really paid by corporations; it's passed on to customers, employees and shareholders who, in effect, pay it".
That seems a bit tenuous to me. Couldn't you equally well say:
"People don't really pay taxes; if you increase the taxes that people pay, it's passed on to the corporations who they buy less stuff from, who in effect pay it".
Taxation is a money-go-round. To a first approximation it doesn't matter where in the loop you siphon off the tax.
>it doesn't matter where in the loop you siphon off the tax.
It matters which country (to the country)! That's why people are p*ssed off with google, starbucks etc. Someone, somewhere pays some tax - I'd rather it was google corp paying to HMG than Mr Shareholder to Cayman Islands Gvmt.
I hope not, I want my local hospital paid for and it seems fair if it comes out of business "transacted" here - ie where I pay for & receive the goods, even if the "transaction" actually happens on line in Luxemburg
I also want multinationals to cough up in other countries where they "should" do
The US fought a war over the concept of 'Taxation without Representation' (Adam Smith accepted that in Wealth of Nations).
Now, with your article, you have 'Representation without Taxation' - so to complete the picture, you must also bar corporations from *any* lobbying or access to law makers - even if they deem such access worthwhile (after all, the taxed electorate didn't get a chance at it).
So either pay full freight for access (access they get now by the way), or stay out. I would gladly allow them to pay no taxes and have them barred from lobbying.
However, they do need to be stung with the exogenous costs they try to avoid now (think pollution), so that the public gets a choice (now) over whether to accept the cost - not later when the corporation has 'disappeared' or 'bankrupt' and the cleanup needs to be done. Taxation is often applied here because this is swept under the rug.
Finally, the concept that lowering productivity lowers wages doesn't seem to have a corollary - that is, higher productivity has not led to higher wages, so you forget that argument as given.
This article totally missed the purpose of taxation,
Companies use the services (infrastructure, security etc. ) that the UK provides, over and above those used by the members of that corporation in the UK. In the interest of basic fairness those excess costs should be charged to the corporation. That is the point of corporation tax
If company X makes £100 profit in the UK and moves it abroad then the UK is £100 poorer, which is bad for the people of the UK period, there may be things offsetting this such as inward investment (i.e. the company moving profits inward to the UK from some other place ) but it is still a net loss to the UK. and to add insult to injury this loss is cumulative with the excess costs of providing services. But not only that it allows international companies a considerable advantage over local companies.
If I was able to order stuff from abroad without paying import tax then I would have some sympathy but I can't so I won't.. Otherwise it's just sophisticated arguing that people with lots of money and lawyers should be able to get away without paying for what they have used.
Why not tax ONLY companies, and not people? How come that is not an acceptable proposition?
Since according to this article, the end result on wages would be the same, people would not lose anything.
And practically, instead of having dozens of millions of tax returns, there would be mere millions or hundreds of thousands, orders of magnitude less work for governments. Tax returns done by accountants which are, according to the article, fundamentally honest and law-abiding. So they would be clearly filled and easy to check. Again, less work for governments.
So why not do that? It all sounds like a win-win situation, companies are already paying for accountants, and real people who can't afford accountants would have a few more free hours each year to spend with their family and loved ones.
PS: I'm not usanian, so you'll excuse me if I don't buy the taxation-representation crap. Companies still should not vote, nor pay for votes.
"Why not tax ONLY companies, and not people?"
I'd be OK with that.
Heck, I've said elsewhere often enough that I'd be just fine with taxing only the rich (I actually said this two weeks ago, in The Times).
No problems at all with either idea.
For the thing is, if we did either of them, we'd end up being able to afford about 50% of the government we actually have. Which sounds just fine to me.
I'm voting you down and agreeing with you at the same time, simply because as with all advocacy of smaller government, it is incredibly difficult, verging on impossible, to make the changes in such a way as to increase efficiency.
How do you plan to reduce government size, deliver needed programmes and also re-employ former government workers effectively?
It's a juggling act I'd love to see.
Yes indeed, small government was probably a great idea when you had a population of just a few million and next to zero infrastructure to look after.
Now 200+ years later you have large populations, large amounts of infrastructure and a hell of a lot more geopolitical/social change that needs looking after.
Try doing that as a joined up picture with your small government.
"How do you plan to reduce government size, deliver needed programmes and also re-employ former government workers effectively?"
1. Easy. Sack people. For example, we could abolish the entire Department of Education by allowing schools to be 'owned' by parents.
2. Take a long hard look at ourselves over that word "needed". Do we really *need* half of what government does? E.g. do we really *need* to oversee aid to China (and then beg them to lend us money)?
3. As to re-employing sacked government workers, well I'm sure their "higher skills and qualifications" (Copyright Polly Toynbee) will let them find excellent high-paying jobs. Or else we make them into Soylent Green. Either way's OK by me.
Okay, freshly created rightwing troll account spib.burfank, we get it, you're either an American (Fox news talking point #2 in your list) or at the very least a libertarian of the Rand-ian crazed sort.
1. Sacking people is a cost - and a waste of resources. Parents are probably the only people worse to run schools than an education department. It's great if you want a return to the 18th Century but perhaps we have moved past that.
2. I'm sure the MASSIVE $12 million in aid to China is crippling your country (2011 figures). Hardly the main focus of your governments spending, perhaps take a look at the good ol' military-industrial complex for that. And then try and dismantle it without killing the rest of your economy...
3. ...Only because you know how bitter you would taste, basted in your sauce of smug superiority.
Seriously your solutions would all create far bigger problems. What you espouse has been tried many times in many locations and it always fails, simply because many people do not work that way and no amount of you wanting them to will change that. You don't seem to have any degree of compromise in your thinking and thus you'll always be marginalised.
You didn't read it properly. The burden is borne by THREE categories of people, the mix being dependent on several things (e.g. the state of the market in which the company operates, the bargaining power of the employees).
A well-known coffee company, instead of buying its coffee directly from South America for $1/kg, buys the same coffee from its Swiss subsidiary for $10/kg, and writes off the extra cost against taxes. That Swiss company pockets the differences and it becomes profit for some rich millionaires.
Meanwhile, the UK Government loses perhaps $2/kg in taxes, which takes from elsewhere, perhaps in fuel tax (have you noticed it costs more to drive to work), perhaps in public transport costs (a train ticket can now cost more the equivalent taxi fare) or makes its students pay for an education ( students used to get grants), or invents "apprentices" who now need get paid only half of the minimum wage. All so that a few millionaires get to buy a couple of extra yachts.
If governments don't take some of the money they need from corporations, then they will simply take it from the other places they can take it from, i.e. those corporations workers pockets.
So by all means call for the abolition of corporate taxes because it's not the corporates that are paying but their customer, as long as you appreciate then that the burden of making up the shortfall will fall to the workers, even those that cannot afford to buy the products generating the products for the corporations you just let off the hook.
Yes, those corporations are complying with the law, but that does not make it "OK", it just makes it legal.
In exactly the same way that someone doing 70 mph in heavy rain at night on the motorway is not breaking the law, but they sure as hell are being dumb and putting other people at risk through their selfish stupidity.
But I am not sure that I can support your assumptions. The EU is an attempt to provide an open market between countries and you are correct that the objective in the long term is to allow a company to sell goods and or services to consumers or businesses in all EU countries without having to actually have a presence in that country. However that model will only work with companies that do not need to have an in country presence (i.e. those that can allow software downloads or send paperwork or goods from country A to country B). The EU model also has a drawback since it envisages a uniform tax framework across all member states otherwise countries will skew the concept of a single market. We see the attempt to for a single tax framework coming to the fore quite frequently in Eu dominated questions (Daily Mail headlines about forcing UK to apply VAT on housing like the rest of Europe).
The second fallacy in your argument is to assume that a lack of corporate taxation will result in benefits for all. This is not true. A company should in theory return the maximum amount of profits to its shareholders. However, in today's world most companies seemed to be geared up to return large returns to its management board at the expense of both shareholders and employees. One only has to look at the Banks where shareholder value has been all but destroyed but the members of the management board continue to receive high levels of return for minimal responsibility. This is true also for other companies.
If Apple is keen to reward its investors, especially those who have been shareholders since the 1990s, then why has it only just paid a dividend? This despite having sat on a mountain of cash for many years. Steve Jobs always said his shareholders should focus on the share price as that was their reward, the money was effectively his or at least the board of directors.
Many US companies currently keep large sums of cash offshore rather than repatriate the money back in to the US where it would be taxed. This money is a real dead weight since it is delivering little value to any of the stakeholders involved in a business. Surely if companies are happy to pay tax in their country of operation they should be happy to repatriate and pay the US govt the tax due. On the other hand if they are interested only in tax avoidance then this would explain why they are currently asking the US govt for a tax holiday so that they can use this money. Problem is the US govt has done this before and had to sit on its hands when companies handed this tax free money to management boards and shareholders rather than creating the jobs or making the investments that they had promised would happen.
The one fact I think that everyone needs to take on board is that the likes of Starbucks, Google, e-bay and others are now claiming that they pay huge sums in employment taxes and VAT. The reality is that the majority of employment taxes are actually paid by their employees and other than financial institutions companies pay no VAT since they reclaim it from the VAT paid by the customers which companies collect on behalf of the Government. The person paying the VAT has no option to pay even where it is becoming unaffordable (for example on energy and heating supplies).
Companies being people should pay their taxes and that payment should take place to the extent reasonably possible where the transaction takes place. Both Google and e-Bay employ people in the UK as do Starbucks. They should be paying the relevant taxes on their income just like people because at the end of the day, if they are people who can contribute huge sums of money to political campaigns then they should be treated exactly like ordinary people.
international environment but the the countries are competing for finite resources at any one time.
be thankful that not more of the work / income generated is not leaving the uk and being carried out abroad.
and dare i point out that these big companies are still paying company National Insurance contributions, still paying Rates, still paying workers, still paying suppliers (who may even pay tax at the normal rate) all the way down the chain.
don't piss them off for the sake of political PR or they will just move....
Not sure I agree with / understand all of it; but it does tend to support to a theory that I've held for a while.
My theory is that the current trend of over the top downward wage pressure by companies is counterproductive because it shrinks the economy. They may increase their profit margins, but the results is less money in the economy to be spent on the products or services offered by these same corporations.
The point the author makes is: Shareholders want a certain return on their money, so taxation would cause decreasing wages and higher prices, since the return must be maintained.
This argument is severely corrupted by the fact that the value for shareholders is determined by the share price, which in most cases bears hardly a relationship with the real value of the company. The share price is based on the expected profit. Since shareholders only invest in shares because they expect better returns than on a bank account, it seems not unreasonable to tax the profit which is in excess of the return on a bank account.
The profits that companies report is after deduction of all costs they make to obtain these profits. Normal employees can only deduct labour costs in a very limited way, and still pay 25-60% in most countries. Including VAT, taxes on gas employees could end up paying 60-80% of their income in taxes in some EU countries.
This is highly unfair, the shareholder makes untaxed profits, while someone doing 180hrs/month ends up paying more than half his income. The current EU tax regulations are thus discriminatory towards working people and that should be changed towards a system were everybody contributes in the costs of our developed society.
Corporate tax is payment for the service of continuing to pretend they exist. Corporations are a legal fiction that exists for the protection and convenience of their owners. Why shouldn't they pay something extra in exchange for not being personally accountable when things go wrong?
On a much smaller scale, I'm a member of an LLC, which is kind of like a corporation only with less red tape. It means that no matter how bad we screw up the business I'm not going to lose my house. For that privilege we pay an extra $800 a year, and I think it's a good deal. If we ever got really successful we'd have to pay more, and it would still be a good deal.
"Corporate tax is payment for the service of continuing to pretend they exist. Corporations are a legal fiction that exists for the protection and convenience of their owners. Why shouldn't they pay something extra in exchange for not being personally accountable when things go wrong?"
Well, we've another EU law to consider there. Corporate registration (ie, companies house, all that stuff) is by EU law only allowed to work on a cost recovery basis. So, whatever it costs to run the system we can claim back from those who use the system. But no more.
"Corporate tax is payment for the service of continuing to pretend they exist."
Really? In that case you can pay me £100 for the service of not hitting you in the face with a brick.
"For that privilege we pay an extra $800 a year, and I think it's a good deal."
Not as good a deal as $0. Your happiness is misplaced: I suggest you google for "Stockholm syndrome"
of looks like, squawks like, must be; a company who maintains an off ice in a country is domiciled and should be fully liable to tax..
International companies often sell through the in-country office but "drop ship" equipment directly to the customer directly from a company's branch in another country.
The UK should designate all such pseudo sales as taxable - both from a Duty and Corporate tax viewpoint.
I, as a technician, have been 'imported' in to countries for installations where most of the labour/contractors were local.so the locals billed me (my branch) as a 'foreign' customer and the company customer was billed by us less all sorts of taxes.
I know I'm good, but not good enough to erect a 200 foot guyed mast single-handed!
"International companies often sell through the in-country office but "drop ship" equipment directly to the customer directly from a company's branch in another country.
The UK should designate all such pseudo sales as taxable - both from a Duty and Corporate tax viewpoint."
It could be done, sure. It's just that we've some 110 double taxation treaties with other countries. All of which insist that drop shipping, even the ownership of warehouses and logistics chains, do not give rise to local taxation of profits.
Even the standard OECD recommended such treaty insists the same. So we could indeed change the rules. But it would be an awful lot of hard work. And, of course, the UK currently gets the tax from all those UK companies that do the same in other countries.
First off, 100% correct, there's no tax evasion here, having free trade within the EU does have it's consequences, and one is that companies can operate out of whatever country has the best tax code.
The problems I see with this elimination of corporate taxes here in the US are:
1) You have here these investment firms, that rather than doing legitimate investment will use high frequency trading to put themselves between the legitimate seller and buyer and take a cut that they aren't really owed. The least they can do is keep paying taxes on this ill-gotten gain. They also must be within a matter of miles of the trading floor since they require very low latency. There's private equity firms, too, which buy companies not to rehabilitate and streamline them, but to max out the purchased company's credit lines, pay themselves loads of money while they brankrupt the company and screw over all those who loaned the company money. They should at least pay tax on this too. Businesses here get all kinds of services (FDIC; dairy, beef, and pork companies getting tax-paid advertisements, the list goes on and on), they can bloody well pay for them.
2) These same companies who don't want to pay taxes, have had no problems accepting bailouts and asking for various credits. I feel like, at least here in the states, if corporate taxes were eliminated they would "forget" to eliminate the credits and various payouts to corporations, rather than leaving the value at 0.
In the UK, a good chunk of the personal tax bill is already paid by the employer. Years ago politicians worked out that this was a sweet way to ensure that the average employee has no clue the government has already taken its shovel to your paycheck, even before you see the headline number on your slip (from which further tax is taken out).
so much bull in on article in my life. Companies should be forced to pay taxes on every product that end up in a country. price should be made uniform by LAW (every single human on the planet pay the same price no matter where he live). Companies guilty of trying to avoid taxes should be instantly shutdown planet wide. Any company breaking the rule for any reason is instantly shutdown and it's owner executed on the spot. this is how you get greedy corporate inline.
ho wait....... tie mean every oil company in the world is doomed.
This article is so full of half truths it's hard to know where to begin.
But the authors agenda is crystal clear when he says: "Yes, corporations are legal people, this is true, but this is so that they can be sued and we like being able to sue companies."
Companies exploit corporate law so that heads of the companies CANNOT be sued; the whole idea is that (even if they are engaged in gross and criminal activities) only the company can be sued.
"This article is so full of half truths it's hard to know where to begin."
I forgot, your lazy received opinions entailing less than ten seconds of thought are more valid than the collective lifetimes of people with genuine intellect and expertise.
Our company has a local competitor who shoves all it's sales through an agent in Luxembourg who takes 25% commission on sales. The servers we understand are not in Luxembourg but Germany.
Because they pay less tax they can sell a very similar service to ourselves at overall lower costs as taxable UK profits are reduced due to the commission. The money if needed back in the UK is loaned through various vehicles back to the original company.
This company is a national company - we are not, so cannot afford the £1m setup costs, they can even pay their staff more per hour than we can afford too due to the overall lower cost structure..
CT is an outdated tax.
"Apple sells the iTunes stuff in from Luxembourg". if this were the case then UK iTunes customers would be paying 15% VAT and not the 23% Irish VAT. Itunes customers pay higher VAT to subsidise Apple's low corporation taxes in Ireland.
Strangely google manages to charge UK vat to UK customers even though their servers are in Ireland as well
"I'm pretty sure my company pays taxes."
I'm pretty sure it wires the VAT every quarter to the Revenue too. So why are customers paying higher prices if your company is paying the VAT?
Then again, I'm pretty sure you're an idiot who didn't read the article and doesn't know what the word "burden" means.
The article was speaking in relative terms. What it was pointing out was that if you didn't pay CT in your profits, sooner or later you'd pay personal rates on it. And if you held it until you died, then you'd cop inheritance tax which is even worse. However it was also point out that if you were allowed to keep a bit more of your profit you could decide to spend it on employees instead, whereas as it stands the government will relieve you of your job creation capacity and spend it on something else instead.
Not at all sure I agree with the article, but one thing that it is made me do has to think about the subject. Seems like that is the last thing economic arguments do these days, which is a shame. Thanks for something that is actually thought provoking. Off now to look up stuff. And an especial thanks for the Adam Smith "free hand" information. Am going to get down and pedantic with that! ["Who would believe me now that my hands are free, that my hands are free?" Gentle Giant ;-) ]
The problem with economics is that it's not a hard science, or even a social science. It's a bunch of ideas, some of which may appear to be backed up by evidence. Hence, sentences like this:
"With respect to the incidence of corporation tax, we have known since 1899 (when Seligman first pointed it out) that the company itself does not ultimately carry that burden."
are putting the cart before the horse. One does not simply "point out" the truth of one's ideas. One might argue them; one might even have some figures to back them up (although I'd hope that when accepting economic theories as timelessly true one might look for data more recent than 1899); but one does not simply "point them out". This sentence is merely appeal to authority in disguise, and the author invites us to assume that no one has ever substantively argued against this point; however even a light perusal of the 1899 work shows there was a huge list of competing theories even then. Are we to suppose the work in question was some kind of economic logic bomb that disproved 20 competing ideas in one fell swoop?
Overall, since the author's entire thesis rests on Victorian ideas about economics, I might happily reject it, as this stuff is "Economics 101" in the same way that Newtonian Physics is "Physics 101" i.e. it's all since been proven to be a gross oversimplification of the real world. The issue we're supposed to be talking about today didn't even exist in 1899, so how is some economist supposed to have predicted the correct resolution back then with no data and not even the same kinds of globalized industries? Please. You may as well tell us what the Bible says, or what Nostradamus is supposed to have foretold.
"One does not simply "point out" the truth of one's ideas."
No, one justifies it and then tells people (by "pointing out") what one has concluded. But in this day and age, one does simply puke one's lazy opinions into the comment sections on the internet and demand equal weight with those who have actually done the reasoning before "pointing out" the results.
Because they do business here they should pay tax here, if we just tax people (the shareholders) and they all live in (say) the US then the rest of us are screwed.
Unless you can a figure a way for HMG to tax Californians on their share bonuses based on business done in the UK
The alternative is trade barriers.
And this is not just the UK, multinationals are screwing over developing countries all the time
Unfortunately in the real world local companies cannot compete against the big boys because they ship profits to lower tax places and your local coffee shop goes bust.
Also, corporations tend to hoard cash waiting for tax holidays to on-shore it which results in non-productive capital being stashed away, and even when it is on-shored it goes to already rich shareholders or executives whose marginal rate of consumption is significantly lower than those at the bottom of the economy to whom taxes could redistribute corporate profits.
"Unfortunately in the real world local companies cannot compete against the big boys because"
.. they have higher turnover against which to amortise fixed overheads. This is a fact of life, and tax is neither here nor there. Employment regulations, for example, hit smaller companies disproportionately. So does the cost of acquiring IP. Or arranging one's tax affairs.
It's always like this: it's how arithmetic works and why companies get more successful as they grow. Direct your complaints about the laws of arithmetic to God and stop whining about Starbucks.
This nonsensical opinion will do more harm than good confusing readers even more on a complicated and important issue by freely mixing economic theory, fantasy and not considering actual tax laws.
Of course companies do pay taxes or else there would be neither issue nor laws nor extremely rich tax consultants.
Of course Google, Apple, eBay should pay taxes as any other firms otherwise they would exploit an unfair inequitable economic advantage over other companies, which is unfortunately true nowadays, as most big international companies do ( GE being the king, having almost as many tax lawyers as engineers).
While companies have a duty to minimize their tax burdens they should do so in a lawful manner and not profit from legislation holes or evade tax by manipulating transfer pricing rules. It is very probable that double Irish and Dutch Sandwich’s days are counted because they are unfair and inequitable. Switzerland, Liechtenstein and many other fiscal paradises had to make huge tax law concessions for sums which are dwarfed by global companies tax dodging. While Ireland, the Netherlands and other tax havens in the EU such as Jersey and Guernsey have largely escaped the legislator’s scrutiny because they are in the EU, they will be next.
why does the reg insist on giving valuable whiskey vouchers to idiot right-wing shills?
corporate tax is the cost of doing business in the UK, you dont want to pay it, then fuck off and trade elsewhere.
you sir a wrong-headed oaf, and, given your starting point, i cant even begin to explain why. (well i prolly could... but whats the point?)
never mind, your precious market will address this, and amazon are already bracing themselves for their worst ever christmas results.
"why does the reg insist on giving valuable whiskey vouchers to idiot right-wing shills?"
Perhaps El Reg see their mission as informing and educating.. Fat chance with people like you: idiot socialists who know nothing and gets all upset when your deranged ideology is undermined by facts and logic.
unlike you clever clever neo-cons with your 'special' understanding of economics.
so pray tell, hows that whole 'we have eliminated all risk from ninja mortgages' thing working out for you?
so what about the Chinese economy (well known nest of Friedman worshipers if ever i saw one) out growing the good ol US by a factor of about 5. (and being more than a tad pissed off about their poor figures)
praps we need to look to Lehman bros to get a practical handle on how it all works? no, what about Kweku Adoboli, he must be a man who understands how it all works at the sharp end?
or maybe you are banging on about good corporate governance, you know HSBC _not_ laundering drug money, American Airlines, not skipping vital maintenance (gotta make a few more bucks for the shareholders, dead passengers?? that's just the cost of doing business) Enron anyone??
Anyone with 2 grey cells to rub together (so that's you out) gets that modern capitalism is comprehensively broken. By any metrics the US economy was in much better shape (sustained) in the 50's than it has been at any time since the 80's. and all you need to do is look at tax and spending policy in the respective periods to understand why. - apart from anything else the batshit crazy tax dodging 1%-ers just got their asses handed to them on a plate in an election a few weeks ago.
Mitt, the very paragon of the virtues you espouse, offered to work the same magic for the US economy that he had previously worked for so many great american businesses (mostly no longer trading) strangely they chose to stick with some kenyan terrorist!
go figure... maybe they know something you don't.
just maybe they know a lot that you don't
The EU tax law is not there so that companies can move around to find the lowest tax haven and 'base' their business there. It is so that a company based in the UK does not have to pay two lots of tax, one in each country, on the same profits. The US do it differently, if the company is based in the US, then every branch has to pay tax in the US no matter where it is based. This, you would think, justifies the moving of profits around to avoid local taxes as well as US taxes, except they don't pay tax in the US either, so it is avoidance.
Pay the going rate on tax in the country where the real corporate headquarters are based, then there is no question of avoidance or compliance. If you have to justify your tax policy, it is probably suspect. Don't forget we are talking about corporation tax which is based on profit. If you need to avoid tax to stay afloat, then something is seriously wrong with your business model, but most likely it is greed which drives this kind of behaviour.
"It is so that a company based in the UK does not have to pay two lots of tax, one in each country, on the same profits."
No it's not. Double taxation treaties do that. The EU is a *single market*. If you don't understand what that is then I suggest you take the time to learn.
"If you need to avoid tax to stay afloat"
Who says anything about staying afloat? Companies aren't there to simply exist: they're there to make money, and the more the better. Sheesh. You really need to get educated.
This is mostly talking about US law...
I suggest a compromise. Corporations be allowed to pay lower taxes (say 10% - even lower than the 12.5% Irish rate that many companies are already using via various gimmicks) to help support services they do benefit from but they give up all aspects of person-hood besides being able to be directly sued (the purpose of the original law) - no more political spending (they aren't people so have no right to free speech as an entity unto themselves), etc.
"I suggest a compromise."
"Hello! Is that the OECD? Yes? Good. I've got a proposal here from someone who writes HTML templates for a living. Yes, that's right, they've got a brilliant suggestion. All that work that you've done on a framework that's logical and consistent between countries? Yeah, you can forget that. Mr. HTML has gone and come up with a compromise that none of the thousands of people who've spent a lifetime understanding finance, accounting and economics have ever discovered. What's that? You've got a problem with your web site where it's not displaying foreign characters properly? Oh, I should ask my postman to sort that out: he's got a brilliant compromise on the handling of UTF-8 encoding."
The guy is right about at least one thing. Corporations shouldn't have the same rights as people... considering they don't have the same responsibilities or conscience.
They should have the right to be sued, or sue, but they should not have any say politically.
Corporations often lobby governments for changes beneficial to their bottom line, but are against government involvement in their affairs. So they're willing to bend you over, but they don't want to accept the risk of being bent over like the rest of us.
This is a common argument of corporations.
Taxing a company a reasonable rate, when they have decent profits (i.e. cash lying around AFTER they've paid operating costs like wages, etc.) will not break them, or cause any undue pressure on them financially.
They have a responsibility to report higher profits to shareholders year after year, this is the untenable thread of corporate greed, and it is an illusion that everyone expects it to continue forever.
What are taxes for? Primarily to pay for infrastructure to facilitate commerce (transportation services from roadways and airports to buses and trains, police and military protection, health care for your workers from birth to death, education to prepare to work, old age security for aged workers, government oversight of labour laws, trade protection, throw a smidge of environmental protection in there). Of course being a worker isn't all that bad in this day, all this infrastructure helps us enjoy our time here too, we could still be living in sod or mudbrick houses.
Corporations are not people, so they can't make sound decisions about the greater good though. Corporations are structured in a way that they can only make economic decisions. As anyone who works for a corporation, myself included, will tell you, you feel a definite responsibility to uphold the rules and seek profit wherever it can be found. They are not evil or good, but are forces of a financial nature. If you want a large section of your economy to be held in banks, benefitting nobody (because a corporation isn't a person) except maybe an offshore banker, then by all means, eliminate corporate taxes.
There is a cost to doing business, just like the roadway outside a drive-thru gets potholes more frequently due to the high volume of traffic, there are costs to everything. The average person sees the costs shifting more and more to their shoulders, while services diminish and suffer, and governments tell their citizens that this is all untenable and we need to pay higher taxes, let corporations pay less, pay politicians and executives more. People in general would be happy if everyone were taxed a flat percentage to even things out, and corporations maybe a bit more to pay for the extra cost of abusing our infrastructure and having lack of responsibility to humanity. The only way to encourage social responsibility in corporations is to offer financial incentives, like tax deductions in exchange for acts of good towards the communities in which they thrive. So they have to be required to pay taxes to begin with.
Lowering corporate taxes never results in lower prices, higher wages or more jobs, the only three reasons you would ever want to. OK, maybe there is a fourth reason if you're desperate, if you want an incentive to keep call centers from moving out of your country into others with lower tax rates.
Also, tying taxes to a specific financial district is so old school. With our modern economy, we need more modern taxation. Sales taxes levied locally should apply to the online services we use. Why should I pay tax through the price of an item, to the government of another country? Likewise if a corporation is based in one country, it should have to contribute to the taxes of the country it does business in through "income tax." It's using the services of the country of business.
Similar to the EU situation, most (all?) USA-based on-line inter-state retailers don't pay State taxes (except for their home state) because State laws are poorly written. Unless the on-line merchant has a brick&mortar store in the State, no State sales tax is collected. This will likely change as several States are re-writing their legislation. Retailers will be required to collect sales taxes for the State where the invoice is sent. Technically, on-line buyers are breaking State laws by not paying State sales taxes but enforcement is not practical. New laws will make on-line buying just like at brick&mortar stores; sellers will become tax collectors for States.
The "problem" for society is not a simple one that simple economists can either understand or solve.
It is one of "fairness". If a small company sets up in their locality they are almost immediately disadvantaged against larger companies simply by the proportion of overheads. Assuming that the proprietor is willing to eat lower margins to be able to compete then in the current system that are still disadvantaged because as soon as they are successful they are immediately taxed to death. The large, established companies simply "move" (on paper only) to a more beneficial locale and base their operation from Luxembourg or Ireland or where-ever.
The trouble is if you remove corporation tax, which seemingly solves the above problem, you have to then impose this somewhere else. So now you move the taxation to the income of the sharholders / beneficiaries which in turn just encourages those who can afford it to move their personal tax affairs to a more conducive locale - and we're straight back to square one.
Those individuals or companies that can afford - through scale - to *evade* tax will do so leaving the rest of us to pay for their lifestyle. I use the word evade intentionally as regardless of the legal or illegal methods used they are simply evading their moral duty to pay up and share the collective burden.
I don't have a solution but it's very easy to see the problem.
I have a solution...
in fact i have 2
Smith & Wesson.
P.S. the scrote responsible for this article might like to describe himself as an economist, but he is in fact just a bean-counter. and we have all had experience of their ilk.
So if we force eBay, Google & Amazon to pay taxes then they will just ignore the UK?
If we make Starbucks pay tax then there will be no coffee houses, Auction houses will be something only rich countries have. yeah right.
Big business benefits countries, is that with the import of ICT workers that push down wages and avoid tax through generous (for employers) expense usage or by creating large business lobbying organisations so that only the little people pay tax or by buying UK companies & exporting the profits tax free?
Are we saying if we closed the loopholes such as royalties, flexible coffee costs etc that local businesses wouldn't fill the void? They might even pay some UK tax and employ some UK workers.
Look at the upsurge of 99p/£1 shops admittedly selling mainly Chinese goods but at a price below the main supermarkets, most are UK based. I suspect the multinational company will swallow the other companies eventually because they will have money in the bank from British taxpayers saved by offshore schemes to buy the UK based tax paying company out. They will then double the price.
Simple answer is that transfer prices are set at the lowest price paid globally by the company and royalty costs cannot be offset against tax. Transactions outside the EU are taxed at UK levels and an annual reclaim is made based on tax paid in the transaction country.
Vat avoidance - where a company sells something under the current threshold of Vat applies to pay the vat electronically before despatch. You can then have the packets marked tax paid with a corresponding bar code (like an electronic postage stamp), anything else is held at customs until the sender pays or returned to sender with a bill.Currently vat payment internationally is a complete mess with the only way to pay vat is via the carriers who charge extortionate handling fees to the recipient. That will stop various DVD companies living in the Isle of Man.
All of those are reasonably easy to administer.
The only way any company should avoid paying tax in the UK is by producing a certificate from their host country saying that they paid more, then we can reduce their tax liability proportionally.
This article gets the coveted award for most wrong on a single page.
a fundamental misunderstanding of just about everything mixed up with some very heavy blinkers.
"Firstly, companies do not pay tax. No, not ever. A tax requires that the wallet of some human being gets lighter"
-can I have some? whatever that is that you're smoking. It might make me fret less about my corporation tax bill...
"Various tech companies sell into the UK from outside the UK. They book their revenue outside the UK, make their profits outside the UK, and thus no money is levied"
-yes, just last year I was one of 14 UK contractors who were replaced by an Indian offshore company.
Good business? or importing without paying duty and selling out your country for a quick buck?
As it turns out the quick bucks all disappear into the black hole of communications issues and an "inability to interpret requirements". But the intent was there and these guys receive public funding.
In theory it's some mixture of the customers (who end up with higher prices), the workers (who get lower wages) or the shareholders
--but only if you assume the taxation is not a part of the cost of business, which it is (unless you are Mad Max with Mad med skills)
While it is true that manipulating/playing the system has become so common place we don't think of it as wrong and have yet to wake up to the one directional economic tide.
The biggest common failure of comprehension is that a general principle of tax is that it should be paid on earnings in the jurisdiction in which they were earned.
Our MPs may (in their Hungry Hippo like greed) have neglected to foresee and legislate this in the face of emerging of international free markets. But that doesn't make it right to exploit the situation after dropping your kids off at school, popping into the doctor and driving off to work safe in the knowledge you're likely to encounter no greater danger than a queue for coffee.
...by the logic of many here - since I am on PAYE I don't pay any income tax at all ever - because I don't send a checque to HMRC.
This is all about what taxation structure is going to bring in the most money for the least cost with the least avoidance.
A good taxation scheme - one that brings in the most for the least will be regressive (land and consumption taxes). You fix that part by social spending and it still comes out cheaper in the long run than a progressive tax system
I think the writer does have a point to some extent, yes when you are effectively importing product to the UK then its fine not to be taxed by it, so for example Facebook, eBay who are just selling services can exist wherever they like. However with Amazon we have a fairly different situation, they sell from Luxumberg but distribute from the UK, so all their stock actually is in the UK.
If they were to take the hit and actually export from Luxumberg and import into the UK then fair enough, let them trade from Lux and pay that tax rate, but they shouldn't be able to have the best of both worlds, UK distribution and non-UK taxation, especially when the entity explicitly is Amazon.co.uk
All this really is about conflict of interests. If UK government want more taxes from Google/Amazon/etc, they should try harder - first, they should replace corporate tax with sales tax or other kind of tax that's applied to revenues instead of profits. And the government have all the rights and means to do that. On the other hand, Google/Amazon/etc have full right to decide not to sell/serve/provide anything in the UK anymore. Let's wait and see who loses more.
This was the best post I read all year. The only problem with it is that the average voter reading the article had reinforced their understanding that companies are proxies for rich people and that screwing rich people is good. Even if you want to "tax the rich 'til their pips squeak" (I do not), this is the absolute worst way to achieve it and ends up screwing the employees as much as the wider economy.
When you tax companies more the most direct consequence (after the outright loss of business is taken into account) you just reduce cash available for jobs, reduce capital investment, reduce company tax take, reduce national insurance tax take, reduce VAT take, and reduce the overall size of the economy.
What needs to be carried in the media is that if you reduce company tax (ideally to zero) you increase the amount wealthy individuals will pay in personal taxes without materially affecting the typical tax paid by low earners. If the average voter actually understood this Labour would be all in favour of it, and not least because increased pay would mean there would be fewer low earners.
If you instead reduce company tax, you increase the cash available for jobs, increase capital investment and average pay therefore income tax as well. You obviously also reduce company tax take but that money then reappears in greater quantity via income, national insurance, capital gains and VAT take. And the economy gets bigger to boot.
"Firstly, companies do not pay tax. No, not ever."
After thinking about this for a bit, I've realized that the principles behind Mr. Worstall's reasoning seem to point to a conclusion that should be good news for everyone: People don't pay taxes ever either.
In the end, it's some mixture of their employers/clients (who end up with higher prices for the cost of their services), the shareholders of said employers/clients (who therefore aren't getting as much for their capital outlays), and owners of the businesses people patronize (who have to lower their prices in order to get customers to buy at an after-tax income).
Since people don't pay taxes and corporations don't pay taxes, I suppose nobody does, which might explain the need for austerity measures.
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