Damaged HMRC's reputation?
News to me that that was doable.
British MPs have demanded that the government act to revamp the tax structure after damning revelations about Google's corporate payments structure in the country. The Public Accounts Committee said in a report that Google had damaged both its own and HMRC's reputation with its "highly contrived" tax arrangements, which had …
The quote came from Hodge - whose own company has managed to avoid paying tax by some pretty underhand techniques... pot calling kettle? Nope, she is an MP, therefore quite above being wrong obviously. And the voters, yup, they are so damned stupid they'll be flocking to put their mark next to her name next election, and the one after that... Or maybe - the conspiracy guys might guess - the ballot papers have no effect on the outcome.
.. as if any of the likes of E&Y are going to admit that they're paid to dig for loopholes.
However, in this case were are not talking about loopholes - we're talking about lying. Google was selling in the UK, and should not only face the bill for that, but also the penalty for attempting to deceive HMRC. If any of us is out by a penny they're happy to haunt you, time to deploy that enthusiasm where it actually provides a return.
1) HMRC not saying anything when they got the cheque for 16 million.
2) Google thinking they can just say, "no, we ain't going to pay, we give a few of you jobs"
3) Some Politions actually backing that 2nd point up in public
4) Google's blatant lies around the selling of their services
Perhaps most damning of all
5) Margaret Hodges own family run company doing exactly the same as Google with the same arguments. but not being investigated by Parliament like the Google circus.
Re: Point 5
Actually that was a case of a lot of noise being made about the initial accusation and very little being in the papers about the subsequent apologies for having got the facts wrong. Even Private Eye (scourge of this kind of thing) said that actually Stemcor weren't doing anything dodgy, and made the point that they'd spent a LOT of time looking into the accounts to try and find anything.
Stemcor aren't doing anything wrong. Nor are Google. But Hodge the Dodge is doing something wrong by attacking a company carrying out a legal activity whilst she herself does the same legal activity. It's called hypocrisy. Hodge is using a trust to avoid her children having to pay inheritance tax. A trust set up by her father specifically to avoid tax. It is true that currently no inheritance tax is due for unlisted family run companies like Stemcor, but it was not true when the trust was set up. Hodge is just grandstanding as chair of the PAC, lots of shouting but no action because no action is possible as everything is legal. She shouts a lot because she is a champagne socialist who just doesn't like it that everyone else is being taxed to the hilt to pay for all the voters that she would like to bribe with benefits.
point 2: if government after government had spent less time enticing internationals to set up shop in blighty by offering not to tax them, maybe those internationals wouldn't take them up on the offer.
Politicians have spent decades saying we'll liberally reward anyone that brings collateral benefits, set up taxation to do it, trained HMRC to implement the ensuing free for all. Too fscking late to dodge the blame, politician monkeys did it, politician monkeys need to fix it. Only then do they get to blame others.
Whistle blowers talking to newspapers have as much credibility as an MP's expenses claim. The HMRC have what it takes to take what you got. Give them some real evidence that Google have broken the law, and they will get taxes and a hefty fine out of Google. As we have seen Margaret Hodges is not an expert on tax law or investigating tax evasion. She has publicly harangued a few Google executives, but she has not got a conviction against Google for tax evasion. The only reputation she has damaged is her own.
I'm not sure it matters where the "selling" is done. European law seems to allow companies to pay tax in a single country, no matter where the "selling" is done. What matters is which country is on the bill. This was very explicitly meant to be a feature of European tax laws, and not a bug: It means that you can sell in many countries without the hassle of paying taxes in each of them.
Google may have been wrongly claiming that sales were happening in Ireland, but this is probably just for saving appearances; the fact is that they are allowed to pay taxes wherever they want.
You may go to a travel agency to buy a plane ticket; you may get convinced by the travel agency to buy a certain ticket; you may never talk to anybody from the airlines company. Yet, the ticket you buy is still a British Airways ticket, not a Kuoni one, even though Kuoni did the selling. The travel agency only pays taxes on the commission they get, which has nothing to do with the amount the airlines company earns.
Pre-sales, customer education, regional sales kit development and market analysis would be my guess. In most settings the individual who closes the deal is the salesperson, regardless of who else may have assisted in the run up to the consummation of the deal. That's a pretty standard arrangement, it looks like Google just took it to extremes and maximized the definition of the word sale.
I can tell you know I've been sold to by Google in both the UK and Ireland. In Ireland as recently as two weeks ago, in the UK twice in the last year at their offices in St. Giles. Google UK staff pitch products to UK corporates daily. Its ridiculous to suggest otherwise.
Surely even the most strident person arguing that "it's all legal, therefore it's OK" can't argue that avoiding as much tax as possible, within the law, is also "paying their fair share". The whole point of this sort of tax avoidance it to not pay their fair share, the defence of it is that it's legal, I've not seen anyone argue it's moral or fair.
Always remember that "shareholders" means, for the most part, our pension funds. More tax for the state now means less pension for us later. A bit of tax surely has a very small effect on my final pension, but then a lot of tax has sod all effect on how wonderful a utopia I get to live in now.
I'm not convinced tax is any more or less moral than paying shareholders.
Course, Apple are avoiding both.
"...I've not seen anyone argue it's moral or fair."
OK, I'll bite. The loopholes exist because at some point Parliament decided that the system would be *fairer* if an exemption was permitted in specific cases. We call those loopholes. Creating them required more effort than just having a flat rate. They would not exist if MPs didn't think they were fair.
... and use them in a way that was never intended by parliament
The intent of parliament is expressed as laws, if parliament makes laws that parliament does not understand the consequences off then there is a problem somewhere. That problem may be easily resolved by parliament making better, simpler, more transparent laws that parliament *can* understand.
Some may get the impression that "the intent of parliament" was to let lobbyist, lawyers, cronies and special interests write the laws for parliament to rubber-stamp - and now parliament wakes up with a sore bum and feels violated.
If that is the case, a settlement will be the outcome, not changes in the process or the legislation.
And it's all those bloody loopholes which mean HMRC employs 3 times more staff than it should need ti (well that and the usual civil service featherbedding which goes on)
There are 2 issues with collecting tax - one is the gross income and the other is the cost of collecting it.
It's possible to _reduce_ gross income and still come out on top if the expenses go down by even more. That's been amply demonstrated in a number of countries.
@Ken - Not quite - A loophole is something which is unintended, that's what the word means. There may well be a particular situation where an exemption is intended, but this isn't a loophole, because it's intended. By definition someone using a loophole to avoid tax is behaving within the letter of the law, but not its intention.
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So Margaret Hodge is quick to blame the corporations and HMRC, but ignores the fact it's the politicians that make the rules (supposedly). If the crime rate goes up, we don't blame criminals we blame the policy makers. The same should go for corporate tax avoidance.
Politicians are deluded if they think "doing the right thing" even remotely exists in the corporate psyche. They know that corporations are run by money, not moraility, and if politicians want to moan about the corporate tax arrangements then they should take a long hard look at themselves before blaming anyone else.
MPs can jump up and down all they like (though they're only doing it due to public/press pressure). You only ever pay the tax legally required and have no obligation to do anything otherwise. What is legally due *is* their fair share, not what people think you should morally pay. HMRC is not a charity and you are a fool to volunteer tax that is not due, not to mention damaging shareholder's interests. I'd quote Lord Clyde yet again, but I'll leave that to a Google search.
They just need to propose a change to the law, and it should be simple, open and fair, applying to everyone equally.
Oh wait, that mean's they'll get shafted in their own avoidance schemes ;)
What gets me is the rants about Google, Amazon, etc, and yet the gov has been quite happy to provide massive tax breaks to Hollywood to encourage them to shoot the likes of the new Star Wars films and yet that is effectively a sanctioned tax avoidance scheme as after all they're not paying their so called "fair share" are they? ;)
That is the whole point - The government advertise some methods of reducing your tax, they tell people/companies about them and invite them to use them. I am a tax avoider, I have Premium Bonds and an ISA. I have these products because the government wants me to have them. I don't arrange for my pay to be put into an offshore umbrella company who pay me minimum wage and then make me a series dividend payments (or however it works) because it's obviously not what the system is intended to do.
What gets me is that the HMRC is quite open about its own double standards.
"Employment law and tax law are not related." Employee A is deemed to be working for Company B when it comes to Employee A's tax, but not when it comes to Company B's tax or employment benefit obligations.
1. Be an international corporation and have a tentacle in Britain
2. Pay your taxes according to the law
3. Get told thats not good enough, suffer reputational loss, bad press, etc.
4. Close up shop, and move all the jobs to somewhere where your not a punching bag for thieving politicians and their over-endowed sense of entitlements
With crap like the politicians are spewing, why in God's name would anyone bother when they can just plant themselves in business friendly Luxembourg or somewhere?
point 4 is irrelevant because the UK is a large enough market that they would hurt their own business by pulling out. This excuse has been used before by the City to try to justify leaving their enormous bonuses untapped, but its a straw horse as there are plenty of other reasons why the companies and people CHOOSE to stay in the UK even if they have to pay more tax.
Because there's plenty of money to be made here? Even after tax? They made 18 billion in five years, they could lose a good chunk of that and it'd still be worth doing. It's all about the bottom line, they won't give up on 10bn just because they think it should be 18bn....
That's £18 Billion turnover they're making, not profit, what they're making could be any number between 0 and 18 Billion.
To answer your more general point, if it costs you, for example, £9 Billion to make £1 Billion profit in the UK but you could make £2 Billion with it in another country where would you invest your £9 Billion?
You know that's rubbish right there. The company would spend the $9b in both and make $3b. No-one walks away from $1bn in profits no matter how loud they cry that they would.
I'm with the "just abolish it" crowd on corporation tax. They can't fix it and they know it so just stop doing it. UK businesses can stop suffering this completely unfair system. Google won't need to offshore, so ther'll be more jobs here - where they should be - serving the UK market.
"2. Pay your taxes according to the law"
This is fairly murky water given evidence suggests Google probably hasn't been paying tax according to the principle or wording of the law. If you make a profit in the UK you're supposed to pay tax on those profits - it's that simple. If you using dodgy accounting practices and lie to parliament and the HMRC over this stuff at best you're sailing close to the edge.
Google says it makes no profit in the UK, which everybody thought was pretty silly and then subsequently a huge pile of fairly believable evidence surfaced suggesting Google were being worse than economical with the truth, in the same way as Apple were being economical with the truth over either their Aussie pricing practices or their US taxation practices.
The argument that Google employs a few people and pays NI and some income tax (though that's probably worth taking a long hard look at anyway) so we should leave them alone is pretty damn silly - because so does every other employer - it's one of the the costs of doing business, and funny story, it's a before-profit cost - and it's not actually that many jobs.
Now I'm no accountant, as my accountant knows all too well, but seeing as these 'profits' are being eaten up by 'paying for stuff' from a parent/sibling company in a different tax domain, then presumably these 'purchases' the UK-based
laundering operation makes to the elsewhere company are imports. Kinda like Hollywood accounting but cross-jurisdiction.
Therefore create an import good class of 'dodgy sibling company purchase' and tax the FUCK out of it, no?
Should I be in Whitehall instead billing £1500/day for coming up with shit like this for some working committee?
Pint for everyone as it's Friday.
The technicality allowing Google to pay little or no consequential tax in the UK is quite frankly nonsense. If HMRC want to start collecting from corporations they either have to move away from GPT, as profits are offset against expenses ( see Starbucks UK having to pay high licensing costs to Starbucks Bermuda ( or somewhere similar ) and thus operate with a loss in the UK despite £1.8 Billion in sales ) and simply change corporation tax to be based on turnover instead of profits.
It's far from that simple , I'm not a banker / Accountant but as far as I see , as long as corporation tax is based on Profit , there is nothing to stop any company having to pay 'fees' to an off-shore subsidiary and thus consistently run their UK arm at a loss despite massive sales ( Starbucks, Amazon , Google, Apple and possibly many small businesses also )
I don't know what the solution is but the politicians either need to be frank to the public that we're OK with the large employers paying no tax because they create private sector jobs, or devising a solution that if you want to operate in the UK and you're tax base is elsewhere then you face a turnover tax instead ( or something ).
Overly high licensing costs to an offshore parent are an example of transfer pricing and the HMRC should apply the arm's length principle to such transfer pricing transactions.
(They compare transaction costs between connected parties to the pricing of the same transaction if it had been executed by unconnected parties - parties at 'arm's length', so to speak - and woe betide you if there's a massive difference.)
If a loophole exists in transfer pricing legislation, then it is just a technicality and an amendment to HMRC rules should should not be that difficult - even for Westminster.
You really haven't thought that idea through, have you.
You can't tax solely on turnover. Let me put it in simple terms. If my profit margin is 10% (I buy widgets at 90p and sell at £1), where does the extra 12p per widget come from to pay tax at 22%? If I sell 1000 widgets, I make £100 profit. If I have to pay £220 profit, where do I find the extra £120?
Then, where do I find the money to pay for business expenses (electricity, rent, etc), staff salaries, and NI?
"You can't tax solely on turnover. Let me put it in simple terms. If my profit margin is 10% (I buy widgets at 90p and sell at £1), where does the extra 12p per widget come from to pay tax at 22%? If I sell 1000 widgets, I make £100 profit. If I have to pay £220 profit, where do I find the extra £120?"
Obviously a turnover tax would not be levied at 22%. Duh.
...are the MPs stating they have evidence of Google committing a criminal act? i.e. breaking tax law? yes? To the courts!
Oh wait, they're not. They are flapping their gums and trying to sound good.
Who wrote the laws?
Not me, not you; but the muppets who are now engaged in damage limitation.
The actual costs of corporate taxes may be passed on to the consumer, but paying that bill still takes a cut from revenue. The trick is to keep enough money coming in at all times to cover those bills, but even large companies are about two steps in front of serious accounting problems at any given time.
Because of the Single Market, things get awfully complicated here. The problem here might be that Google could say OK then, if our sales are from Ireland and there's no UK tax, we just sack all our UK advertising sales staff and carry on as before. I'm no tax lawyer, but as I understand it that would be correct. Although it might be worth losing those few jobs for the nice fines and past tax bill we could charge them. Except to the poor sods doing them.
International tax law is bad enough already, and gets even more complex when you add the EU/Single Market rules on top. We could help a lot by making our tax system simpler. To some extent though we're always going to be working on the 'honours system' with these large multi-nationals. I'm not sure there's going to be much of a way round that, unless all the big economies get together and bring in an international tax system. Which seems pretty unlikely.
You can threaten to tie up 20 head office staff with a tax audit, then go to court over transfer pricing issues and force big legal costs on them. But when you're talking about hundreds of millions in tax, it's still worth all the hassle that puts you through to avoid it.
The trick is hiring "customer support staff" in the UK, who do everything that an account manager used to do apart from receiving the signed P.O., which goes to the 'sales' staff in Ireland, who do everything that accounts used to do.
When the papers say "the service industry rebounded this quarter", that's what they are talking about.
>Ireland must be making a mint from this - they still charge 12.5% corporation tax!
Eh? have you not been following the Apple disclosures - I suspect that Google are doing very similar and only pay 12.5% corporation tax on sales physically made in Ireland - the UK sales probably don't satisfy this criteria...
You've not been paying attention have you? Google don't pay much tax in Ireland either. Thanks to the "Double Irish" (where Google effectively charges itself for use of its IP), Google hardly makes any actual profit in Ireland, all the money going to the Caribbean (Bermuda I think in Google's case) to pay for the licence. The "profit" is all made in the tax haven.
Ireland gets a lot of job creation out of its tax regime, but nowhere near as much actual corporate tax revenue as you'd expect
In the case of Apple they don't make a mint. Due to jurisdictional negotiations Apple undertook with the Irish government back in the day they pay an effective 2%ish tax rate on their European profits as only the Irish part of their profits is actually taxed in Ireland. The rest has no fixed abode and so escapes taxation altogether.
I apologise for reading the article quite quickly and not noticing anything to do with morality.
Surely morally robust assertions of yore need to be featured at least in a sentence or two.
Unless, of course, to do so would harm some individuals in the UK?
And even more surely, are we to turn the clock back 1 year, 5 years, 10 years or more and can we have some dirt on UK politicians, civil servants, high earners of public dosh, accountancy firms, auditors and the like embarked upon such "nefarious" and immoral acts?
(Dear Google - I do apologise for our political overlords lording it up over us mere wage slaves. They seem to get a rush of blood to the head and it makes for all manners of trouble. Look at Iraq or Afghanistan for example?)
It's not that simple ...
A multinational like Google is a complex financial beast. There is a huge pyramid of financial transactions and each level of the hierarchy is overseen by an army of bean counters. Unavoidably, each of these bean counters will need to take averages, estimate, simplify and round off when arriving at their end of year tax figure.
All these individual simplifications add up to a huge wad of cash for the company as a whole - a 'grey area' of corporate finance. The CEO's policy determines how this grey area is treated, how the army of bean counters carry out their calculations. They can be told to they act ethically or squeeze every last bit of profit from the taxman.
So, yeh, ethical tax practices are possible.
The law is never moral. It wasn't long ago that it was illegal to be homosexual. Was the law moral then? No, so why can it be moral now? Taxation is just law, and so it can never be moral either. Why is it a moral duty to pay as much tax as possible knowing that it is going to be wasted. It is your duty to pay the minimum tax to force the government to be efficient with what it does get.
Morality develops over time, it used to be that homosexuality was considered an abhorrent act - something considered staggering by modern right thinking people. This opinion has changed over time and the law has changed to match. Murder, however, has always been considered morally wrong and has always been illegal. Some laws are not moral, but most are. Payment of tax is a moral requirement because we have to pay for our society to work. People who use loopholes in the law to avoid paying for the benefits that society gives them do not act in a moral manner.
No-one says that you should pay more tax than you are required to, this is a classic straw-man. What is said is that people/companies shouldn't avoid paying tax in such a manner that the use methods which weren't intended by law.
I don't see where HRMC's reputation comes into this - their job is to enforce the ( byzantine ) tax laws that Parliament ( = MPs ) create.
And further to one comment earlier, the record shows very little corruption at operational levels in the British Civil Service. Ill equipped, under trained and under funded are different matters.
... it's the old question about Tax Evasion vs. Tax Avoidance ... isn't it ... who, in his right mind, pays more taxes as they have to ... would you ??? ... silly isn't it ... if one can avoid (legally) you can/should/have to do it ... and so do they ... and, don't forget, all the employees who pay their taxes in the country anyway ... I remember, when Ireland changed some tax relieve (regulations) for artists, U2 (the bands company) moved swiftly its business to the Netherlands, to avoid the higher tax demanded in Ireland ... villains ??? ... I don't think so ... if big international companies have some special arrangements, so what, in the end the we all will benefit ...
This may not be so much about Google as about finding an excuse for a nice rates revamp... The economy isn't doing very well, and there are 500,000 civil servants with families to feed and mortgages to pay, not to mention all the other government servants and agents doing non-critical work (non-critical at least from the perspective of the average taxpayer).
There's a reason politicians are reproving companies like Google in the media rather than fixing the source of the problem, which is of course the tax laws, and that's because most companies do the same thing. If the tax law exploits were fixed, many of companies that politicians have relationships with would lose money. Therefore we have this strange situation where a media PR war is being waged, yet all the while nothing is done to fix the exploits that companies are using to avoid paying taxes.
Charities and shell companies, and dividends seem to be a popular way to avoid paying tax. What does the government do about them? Absolutely nothing, because they also benefit from the same loopholes. Only the ordinary working class suffer because they can't evade PAYE.
Knights of HMRC: Money! Money! Money! Money! Money! Money!
Schmidt: Who are you!?
Knight of HMRC: We are the Knights who say..... "Money"!
Schmidt (horrified): No! Not the Knights who say "Money"!
Knight of HMRC: The same.
Other Knight of HMRC: Who are we?
Knight of HMRC: We are the keepers of the sacred words: Excise, Tax, and Cus-tommms!
Other Knight of HMRC: Cus-tommms!
Schmidt (to Larry): Those who hear them seldom live to tell the tale!
Knight of HMRC: The knights who say "Money" demand..... a sacrifice!
Schmidt: Knights who say Money, we are but simple businessmen who seek the riches that lie in this here not so vibrant economy.
Knights of HMRC: Money! Money! Money! Money! Money! Money!
Larry: No! Noooo! Aaaugh! No!
Knight of HMRC: We shall say "Money" to you... if you do not appease us.
Schmidt: Well what is it you want?
Knight of HMRC: We want.....
.......................TEN BEEELION BRITISH POUND! (the paper money version only though)
Schmidt: A *HOW MUCH*?
Knights of HMRC: Money! Money!! Money! Money!
Schmidt: No! No! Please, please, no more! We will find you a TEN BEEELION.
Knight of HMRC: You must return here with a TEN BEEELION.. or else you will never pass through this bureaucracy... unmolested.
Schmidt: O Knights of HMRC, you are just and fair, and we will return with a TEN BEEELION.
Knight of HMRC: One that is fungible.
Schmidt: Of course!
Knight of HMRC: And does not cost *too many* jobs.
Knight of HMRC: Noowwwww.... GO!
"Da dad da da dadad...."
Transfer pricing and licensing shenanigans meant Apple has most of it's spare cash - a lot - parked outside for the U.S. Many companies do this includes no doubt big pharma.
here's the interesting bit: You have to park that cash somewhere where there is a predictable jurisdiction and rule of law - as you need legal protection for your cash pile. Only it may not be as predictable as you hoped, e.g. Cyprus. The bigger the cash pile concentrated in one place that's out of reach of the big power countries (that are doing the whingeing about missing tax receipts), the bigger the risk.
How long before the first big 'our tax avoiding cash pile vanished, big developed country govt please help us to get it back now' case?
The entire British administration from the Prime Minister through the (un)Civil (not)Service down to the most junior clerk, including - in fact especially - Local Government and sundry para-Governmental organisations such as Crapita and its offshoots plus various debt collection agencies and other sub-contractors lack 'common sense'.
It would seem the possession of this otherwise valuable property is a total bar to obtaining employment in any of the above groups.
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