back to article Tax dodging? It's harder to do - and rarer - than you think

So you'd like to know how to avoid tax. After all, everyone else seems to be doing it, so why end up as the Muggins who has to pay while everyone else mugs the Treasury? The simplest and most obvious method of not paying taxes is simply to avoid doing anything. If you're not taking part in economic activity then no one will be …

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  1. J P
    Boffin

    Debt v Equity & hybrid instruments

    Generally a good overview - but the point about interest recipients being taxable, potentially leading to higher overall taxation is a touch disingenuous.

    Interest income may be taxable but returns on equity typically aren't - and a loan note which converts to shares if not redeemed after a fixed period may well be a debt in the hands of the 'return payer', but equity in the hands of the 'return recipient'. So clever structuring can exploit the differentials in accounting treatment to reduce taxes (although scope for it is shrinking; the typical DCLNs which were so popular a few years back no longer work in the UK for example). Goodness only know how you'd handle the impact of that kind of thing on the group accounts underpinning the formulary apportionment beloved of unitary taxation advocates, but so far they haven't even explained how they'd make capital allowances work.

  2. Anonymous Coward
    Coat

    For Average Jo Public

    There are only two certain things in life:

    Death and Taxes.

    Look I'm only 5 minutes in the ground and there is the taxman robbing my wallet for death duties.

    1. Anonymous Coward
      Anonymous Coward

      Re: For Average Jo Public

      We're working on death ..

    2. Version 1.0 Silver badge
      Happy

      Re: For Average Jo Public

      Err ... did you think you could take it with you? Explain please?

  3. Harry Kiri

    Rather than shrug their shoulders and go 'Its not out fault' when large corporations deliberately set-up their corporate structure to void paying tax, it would make a change for them to show balls and say, yes, we dont want to pay tax, so we go out of our way to set up our business with the prime aim of avoiding tax.

    There is no other reason for their Corporate structures - they are inefficient, complex, and just there so as to not pay tax.

    Tax dodging is hard for 'the little people' Its a piece of cake for the rich. And whilst it may be rare its undertaken by the very very rich so the sums involved are not 'rare'. Tax dodging means society misses out or 'the little people' have to pay more to make up.

    1. RonWheeler

      'Rather than shrug their shoulders and go 'Its not out fault' when large corporations deliberately set-up their corporate structure to void paying tax, it would make a change for them to show balls and say, yes, we dont want to pay tax, so we go out of our way to set up our business with the prime aim of avoiding tax.'

      Deliberately giving yourself bad PR - when there are hordes of sanctimonious tubthumpers out there who will pounce? Not likely.

    2. John Sager

      Fiduciary duty

      Companies have a fiduciary duty to endeavour to maximise return to shareholders, so it makes sense for them to spend some effort on minimising (legally) their tax liabilities. In this case company law and the aspirations of government to maximise tax revenue are in conflict.

      As Eric Schmidt said, if legislators don't like the current legal tax arrangements it's within their remit to change the law. And to do that rather than posturing and grandstanding in parliamentary committees.

      1. hugo tyson
        Go

        Re: Fiduciary duty

        Exactly. There's no point in them admitting that they take pains to minimise the tax they pay because they are already required *by law* to do exactly that for the benefit of shareholders (for all publicly traded companies).

        It's just a no-op, no different from admitting the vile crime of attempting to maximise their profits (or market share, or whatever the strategic goal of the moment is).

        I recommend "The State We're In" by Will Hutton for analysis of why UK companies are in an unusually difficult situation wrt attracting investment, BTW: it's because the banks are legally obliged to maximise profit, rather than "helping local businesses".

        Government wishes and company law are indeed in contradiction here, unfortunately.

        1. Anonymous Coward
          Anonymous Coward

          Re: Fiduciary duty

          "Exactly. There's no point in them admitting that they take pains to minimise the tax they pay because they are already required *by law* to do exactly that for the benefit of shareholders (for all publicly traded companies)."

          No, that's wrong. They are required to work in the best interests of the shareholders, not to maximise profit. This is a common misconception.

      2. CaptainHook

        Re: Fiduciary duty

        Fiduciary duty means the executives of a company must work in the best interests of the shareholders... that does not mean they have to use all possible methods to maximise profits.

        For example:

        Step 1) A telephone company changes the contracts for it's customers making the company vastly more money for than expected for a few years as the customers are trapped.

        Step 2) As the various customer contracts end, the customers leave and swear to never touch that company again.

        The executives have maximised the profit of a company for several years, but they haven't worked in the best interests of the shareholders because by maximising profit for a year or two they destroy the profit of the company futher down the line.

        1. This post has been deleted by its author

          1. Allan George Dyer Silver badge
            Coat

            Re: Fiduciary duty

            "The best interests of the shareholders is maximizing profits."

            "We have calculated that we can maximise profit by inviting all shareholders to participate in production of our new product, Soylent Green"

        2. Richard Jones 1
          Unhappy

          Re: Fiduciary duty

          The wonderful thing about theoretical suggestions is that they never need to be tested.

          Quote

          For example:

          Step 1) A telephone company changes the contracts for it's customers making the company vastly more money for than expected for a few years as the customers are trapped.

          Step 2) As the various customer contracts end, the customers leave and swear to never touch that company again.

          End quote

          However, in several current cases that is almost exactly what has been going on for some classes of user. Per second charging has been replaced by per minute charging. Just do not talk about fixed price contracts with escalator clauses. Quite how they get away with that level of chicanery I will never know.

          Some years ago I worked on charging models, some of them quite dynamic, i.e. capable of responding to market changes or advanced time of day charging..

          It was pretty easy to show that even apparently minor and customer benefiting changes could generate much more revenue. The matter is a bit too complex to explore in detail here but basically, change the charge steps so that customers always end up finishing their average call just into the next charge step. Make the charge step fairly big and you can reduce the equivalent per minute or per second charge by an attractive amount. For example go from per second to per minute, a huge change, or from e.g. per ten seconds to say a per 90 second steps and call it the 'Super Saver Bulk Rate.'

          Perhaps the Night owl rate, charged in 5 minute steps, etc. It generates a small amount of traffic at a time when things are idle so the marginal cost is close to zero.

          Watch the data package charges, work out how much data people use, compared with how much they think they use. Set the rates to either overflow the customer into the next band and thus pay a huge top up, or blackmail them into signing up for an over rate package to avoid bill shock and pay for data they will never use. (Admission, I cancelled all data allowances and use a data incapable phone preferring minutes plus texts on a very cheap package. For me, data is for wired connections.)

          None of this relates to tax payments which are a business cost, minimising business costs is highly likely to be a prime target for many, if not all activist shareholders.

          With deposit rates so awful, income generating shares need to generate a good income or they become pointless. My pension fund needs income, so I can pay the tax person their growing take.

        3. P. Lee Silver badge

          Re: Fiduciary duty

          > Step 1) A telephone company changes the contracts for it's customers making the company vastly more

          > money for than expected for a few years as the customers are trapped.

          > Step 2) As the various customer contracts end, the customers leave and swear to never touch that company

          > again.

          Actually I suspect this is exactly what is happening in a lot of the larger IT companies which manage to push profits ever higher during an economic downturn. e.g. Office365. Lots of people are happy to sign up to more expensive deals because they know they have no time to search for alternatives. I suspect that down the road, things will start to get ugly.

          The other thing is that bonuses are paid in the short term. So piling up profit in a tax haven may not be an effective long-term strategy, but it does allow the finances to look good, which benefits the executives who get large bonuses. Yes, it isn't rational from a shareholder perspective, but it people are often short-sighted and the canny executive can take advantage of that for their own benefit.

          1. Anonymous Coward
            Anonymous Coward

            Re: Fiduciary duty

            " So piling up profit in a tax haven may not be an effective long-term strategy, but it does allow the finances to look good, which benefits the executives who get large bonuses. "

            Not just bonuses, dividends too.

            So you've recently had the (amusing? disgraceful?) spectacle of Apple in the USA borrowing money so the allegedly profitable company can pay a dividend.

            Much of the alleged worldwide profits can't be brought back into the USA without paying some tax on them, and Apple would prefer not to do that.

            Still, it's better than working for a living and paying tax on it like most of us in the real world have to.

            Not picking on Apple, they're just the one that's been in the news lately.

      3. Mole5000

        Re: Fiduciary duty

        Company directors are under no legal obligation to maximise returns for shareholders. Not here, no in Delaware not in Australia. There is case law to go along with the actual written law as well. The Delaware case law is about not using a tax avoidance scheme.

        People need to stop repeating this lie because it makes you look like an idiot.

      4. James Micallef Silver badge
        Unhappy

        Re: Fiduciary duty

        "As Eric Schmidt said, if legislators don't like the current legal tax arrangements it's within their remit to change the law."

        Perfectly true. The only thing is that Eric Schmidt and co pay many millions in lobbying to make sure that the elected legislators will not change the law, or else will only change it after careful *consultation* with their *advisers*. They also spend many millions in campaign funding to make sure that any elected legislators who are serious about changing the tax laws are not elected next time round, and replaced with more suitable legislators

        1. brainbone

          Re: Fiduciary duty

          "The only thing is that Eric Schmidt and co pay many millions in lobbying to make sure that the elected legislators will not change the law"

          Yes, but politicians *should* have no "Fiduciary duty" to these lobbyists. A politician's duty *should* be to their constituents, the vast majority of them not being part of any particular lobby. Unfortunately too many of us are distracted by shiny advertisements when it comes time to vote. Should we blame the billions dumped into campaign contributions, or our own complacency?

      5. Anonymous Coward
        Anonymous Coward

        Re: Fiduciary duty

        Yeah, but Eric Schmidt said that knowing that it takes a long time to agree changes to international law, especially something as complex as international tax law. On a local level things get changed, holes plugged, but the tax "optimisation" firms have a queue of other loopholes lined up to use once the ones they're currently using are plugged.

    3. Richard Jones 1

      There is a fine issue in all of this relating to companies. In general the employees have employment contracts which in many cases require the staff to follow the law. They are also employed to act in the best interests of the company while still within the law.

      In some very litigious domains shareholders would sue if the managers/directors financial controllers/whatever failed to maximise the return for the shareholders by not taking full advantage of the legal opportunities to contain costs.

      I will be quite open about tax avoidance, I have not invested some money as the return I would obtain is so tiny and the tax complications would be onerous. The net effect would be to earn so little that the additional work on tax affairs would in effect earn me less than a quarter of the minimum wage. Now such underpayment is illegal.

    4. Anonymous Coward
      FAIL

      "There is no other reason for their Corporate structures - they are inefficient, complex, and just there so as to not pay tax."

      If that were true, you'd have created a small company of your own and driven them all out of business by now.

  4. g e

    How about starting with

    A special class of import duty...

    You pay a lot of money to your overseas mega corp non-UK/EU parent corp? Well now that's a special class of import and you sure do done gots to (I believe that's how they talk abroad) pony up 30% of it.

    At least that would keep the cash in the Eurozone, say - you can't really try that on between Luxembourg and Spain, obviously, that'd would be counter productive. If protectionism's good enough for the USA it's defo good enough for Europe, too. We used to be exceptionally good at it, too, not so long ago, albeit it on a more national scale than a continental one.

    I am not an economist. Or even an accountant. I do dream up crazy ideas though.

  5. Anonymous Coward
    Anonymous Coward

    I moved abroad - no more tax for me. I literally can't pay it where I live now even if I wanted to.

    1. Toska
      Linux

      "I moved abroad - no more tax for me. I literally can't pay it where I live now even if I wanted to."

      Almost the same here. Left Europe permanently and will not return until the EU is dead and done with. Used to have a Limited in the UK and another company in another Euro country. Taxation madness in both cases. Over here? Flat tax the price of a dozen pizzas a year. No booking and accounting required, no tax audits, no indirect pressure to force you to use tax lawyers to avoid all the pitfalls of just filing your darn tax statement(s).

      Think about how many mouths the average EU company has to feed just to be able to file their taxes in a way that it doesn't backfire on them. That's even before tax optimization or evasion and just to get all the ducks lined up *just* to file a correct tax declaration. It's a whole bloody industry at work there, which produces nothing but costs everyone's dime. The average tax laws in most European countries are way too complicated due to the many exceptions for special interest groups or out of protectionism for this or that niche group. It's a system that cannot be fixed with more amendments and more adjustments. It needs to get axed and has to be rewritten from scratch.

      Make it as simple as unavoidable to pay our dues. Both for average blue-collar Joe, the Mom-and-Pop Coffee Shop and the global market dominator.

  6. Jason Bloomberg Silver badge

    Having our cake and eating it too

    For companies based within a country; fair enough, they should pay their taxes in that country.

    For foreign companies, dealing via national intermediaries; what makes a government think it is even entitled to tax the profits of companies other than those based in the taxing country?

    Apple Stores (UK) pay tax on their (small) profits, buyers pay VAT on their purchases. How does the government also have a claim to tax Apple (overseas) for their profit made in selling to Apple Stores?

    Of course we see less tax revenue than we would see if Apple were a British company. If we want to tax Apple's profit we need to encourage them into the UK and be a British company. We cannot because we do not have a competitive corporate tax rate.

    The problem is that we don't get what we could get because we haven't created a situation in which we can get it. That's not Apple's problem, that's our problem. None the less we and our government demand we should get a slice of Apple's profit.

    Bottom line is the British government wants to have its cake and eat it too. Rather ironic when this government bangs on and on about the wrongs of 'entitlement culture'.

    What we need are global tax reforms which are more effective than the blunt instrument of corporation tax which we are hoping to apply to foreign companies outside our jurisdiction. We need a system which can tax money flow which generates those profits.

    1. Oddlegs

      Re: Having our cake and eating it too

      Except that, if everyone was being honest, Apple Stores (UK) would be making a far larger profit. For example Apple UK 'buy' a laptop from Apple Ireland for £999 and then sell it for £1000. Profit=£1. Apple Ireland buy the laptop from a Chinese factory for £500 and sell it to Apple UK for £999. Profit=£499. What's to stop Apple UK buying the laptop direct from China? Arguably this would be far more efficient due to the decrease in paperwork. The only reason not to is to lower the total tax liability. Where was Apple's total profit of £500 really 'earnt'? Most people would say in the UK.

      I fully agree though that Apple are not doing anything wrong. It's up to the UK and other governments to update their own tax laws.

      1. Adam Foxton
        Go

        Re: Having our cake and eating it too

        Ah yes, but think of it from Apple's point of view.

        If you're a Megacorp who orders laptops in by the million, it makes a lot of sense to buy them all as one company- you have one account to administer, your delivery addresses can be changed to reflect market conditions (so if they sell well in Lisbon but not in London, part of London's allotment could be shipped to Lisbon instead), and you have more bargaining power as a single million-unit customer rather than 1,000 thousand unit entities arranged around the world.

        Plus with a single purchasing company you only have one pair of international contract laws to abide by with regards to your supply (i.e. you just need US/Chinese lawyers for supply rather than US/Chinese, UK/Chinese, Europe/Chinese, Japanese/Chinese, etc).

        So it DOES make good business sense even if you're not trying to save tax.

      2. Anonymous Coward
        Anonymous Coward

        Re: Having our cake and eating it too

        "I fully agree though that Apple are not doing anything wrong. "

        Your own example shows that they are doing something wrong. The sale of the laptop from Apple Ireland to Apple UK is a fake sale solely for the purposes of avoiding tax - there is actually a specific law against that. Run it past a jury and see how far you get; everyone knows exactly what's going on but the government is scared of upsetting rich shareholders. So they pretend to have someone looking at whether these sales are fraudulent or not and keep kicking it into the long grass in the hope that everyone will forget about it.

        1. Jason Bloomberg Silver badge

          Re: Having our cake and eating it too

          The sale of the laptop from Apple Ireland to Apple UK is a fake sale solely for the purposes of avoiding tax - there is actually a specific law against that.

          I would guess Apple's stance would be "prove it", and if we could no one would be debating the issue, we wouldd have had it solved. Even if Apple are playing the game, they are playing on the right side of existing law.

          What if I am happy to buy product from Apple Ireland at £499 and sell at £500? There may not be much profit in it for me but it might be enough profit to make it a viable business. How's that not legitimate business?

          How is it then not a legitimate business when scaled up to Apple Ireland selling to Apple UK?

          We probably feel it isn't because it is "Apple" on both sides of the fence, though it is two different Apples in the eyes of the law and in tax terms.

          Corporation tax is generated on profit, in the country where the profit is ultimately received. We however want a slice of that. The only fair and moral way to get that slice seems to me is if we tax that profit as it flows out from the country it arises from.

      3. Anonymous Coward
        Anonymous Coward

        @Oddlegs - Re: Having our cake and eating it too

        But what is the source of that £499 profit? If it costs them £500 to make and sells for £999 that is indeed an extra £499 that Apple makes. But there are a lot of other costs they have to pay, like R&D, keeping the lights on and floors clean at Apple HQ, and so on. If all that profit was booked as being made in the UK it would be just as unfair as booking only a £1 profit.

        In reality, the reason why Apple is able to sell things for significantly more than the production cost, unlike many of their competitors, is because of additional value created in the US. Whether you believe Apple's products really are better because their R&D team takes the time to get the user experience right, or whether you believe their marketers have a lot of people brainwashed, those R&D and marketing guys are in the US - that's where the additional value is created that allows them to charge £499 more than the production cost, versus the £49 some of their competitors are limited to.

        So I'd argue the profit applicable to the UK is much closer to the £1 figure than your £499 figure. And indeed, that is how Apple's corporate tax structure has things set up - almost all their profit accrues to the US. Much of it is 'delayed', because according to US law their overseas profits aren't taxed until they're brought back into the US. But it will eventually be taxed here, they're just sitting on it hoping for lower rates in the future than the current 35%. That may make them look bad in the US, but that's exactly what hundreds of other US companies are doing and is in keeping with their responsibility to do what is best for their shareholders - it is better to sit on the money now and hope for another corporate tax holiday like was very stupidly done in 2004 (or whenever it was) which has made all US companies with significant overseas profits figure if it happened once it is worth hoping (and lobbying) for again.

      4. jonathanb Silver badge

        Re: Having our cake and eating it too

        The thing is, how much do they sell it to PC World for? They aren't going to sell it for a £1 margin. The shelf space, and the cost of employing a PFY to sell copies of Norton Antivirus along with it cost a lot more than that. Once you have that, you have a fair wholesale price for the laptops entering the UK market, and HMRC would expect Apple UK to pay the same price.

        1. Anonymous Coward
          Anonymous Coward

          Re: Having our cake and eating it too

          When Dell, for instance, sells a computer to PC World (I assume that's the UK equivalent of our Best Buy?) then PC World picks up the cost of the shelf space and PFY. In Apple's case they pay for the shelf space and PFY - which at least for shelf space cost Apple far more given that Apple stores are typically located in some of the most expensive real estate around. Presumably they pay their PFYs more, as even though they aren't really "geniuses" they at least know which end of a power cord goes in the wall, something that the typical Best Buy employee would have trouble with and I'm guessing the same is true with your PC World guys.

          So using the difference between the wholesale price that PC World buys a computer for, and what it sells a computer for probably isn't the correct metric, though if it was used it would benefit Apple - they'd probably be able to show a net loss in the UK!

          1. jonathanb Silver badge

            Re: Having our cake and eating it too

            Yes, PC World, or at any rate Currys which is owned by the same company as PC World is the UK equivalent of Best Buy. Best Buy own Carphone Warehouse in the UK which also sells Apple products (iPhones, iPads and some laptops and accessories), so you can use them as an example as well.

            The cruical point here is that there are two different Apple companies involved. A wholesaler based in Ireland, and a retailer based in the UK.

            Apple want to set the wholesale price between the Irish and UK companies as high as possible, so that more profit is made in Ireland where the tax rate is lower. When selling to PC World or Carphone Warehouse, they obviously want to make it as high as possible so that they make the profit rather than another company, but if they set it too high, then they will sell kit from other manufacturers instead, so the negotiations will lead to a fair market price. That is the market price that HMRC will expect Apple Ireland to use when selling stuff to their own Apple UK retailer.

            The UK retailer is responsible for paying for the shelf space and PFYs in just the same way that PC World and Carphone Warehouse are responsible for paying for their shelf space and PFYs. Apple has "Geniuses", Carphone Warehouse has a "Geek Squad" and PC World has "Tech Guys". Yes, I agree that the Apple employees do know more about their products than PC World or Carphone Warehouse employees.

            If Apple decides to spend more money on better trained staff and fancier shelves in a nicer location than PC World, then that's up to them, I don't see why that would justify a discount from the wholesaler. What does justify more money from Apple is that you can take your PC World bought MacBook to the Genius Bar at an Apple Store, and they will fix it under the terms of Apple's manufacturer's warranty. PC World only fix their own stuff under the terms of their Coverplan warranty, which they charge extra for, and I don't recommend anyone takes it out.

      5. Anonymous Coward
        Anonymous Coward

        Re: Having our cake and eating it too

        The simplest thing to do would be to insist that companies end internal favouritism if they want to take advantage of some of these.

        So Apple (China) has to charge anyone else who wants to buy a thousand iThings the same amount it charges Apple (Ireland) before Apple (Universe) can claim the tax benefits of doing it that way.

    2. g e
      Holmes

      Re: Having our cake and eating it too

      No, they're a US company. How much tax do they pay in the US then?

      Oh. hang on. A stack of their money is moved out of the US just for that reason.

      1. Tim Worstal

        Re: Having our cake and eating it too

        Not quite.

        "Oh. hang on. A stack of their money is moved out of the US just for that reason."

        Apple pays full US corp tax on sales that happen inside the US. They do not shift profits out of the US.

        However, they do not move their foreign profits into the US and so their foreign profits do not pay US tax.

        A slightly diferent situation to the one you're assuming.

        1. Tim Parker

          @Tim Re: Having our cake and eating it too

          "Apple pays full US corp tax on sales that happen inside the US."

          I thought it paid tax rates on the corporate taxable income - somewhat different.

  7. Keep Refrigerated

    Permit me to take a stab at it...

    Most of these large global entities are responsible to shareholders, no matter where those shareholders are based.

    So rather than reported profits in $region, why does the government not simply require that companies report:

    a) share value

    b) dividend value

    c) presence - percentage of business done in $region (based on property/employees/sales)

    and come to a percentage of tax required based on that - not unlike the inexact IR35 requirements for individuals.

    Rather than a dividend tax, this would be a tax based on projected value of the company as a whole calculated from shares, dividends and presence. The bonus being that

    a) companies have a disincentive to try and hide or reduce shares and dividends and for fear of punishment by the shareholders.

    b) companies can use clever accounting, but they can't hide the the physical number of employees, premises and sakes that they have in a region.

    Anyone see any holes in this idea?

    1. J P

      Re: Permit me to take a stab at it...

      It's a good stab, and I think you've badly injured the concepts...

      But seriously: - what you're proposing is a hybrid wealth/income tax. Immediate reactions:

      - How do you value private/non-traded shares?

      - How do you 'value' dividends (paid or declared? Before or after WHT/imputation impacts?)

      - The 'presence' section looks like, and would face the same issues as, 'conventional' formulary apportionment

      - Targeting shares/divis is a good way to go for non-distortionary revenue raising (google 'taxing the maximand') but denies you the behavioural regulatory function of tax, ie R&D tax breaks etc. Policy makers do seem rather wedded to that side of things, at least in common law jurisdictions.

      Overall - I'm not sure it's feasible starting from where we are as a *replacement* for existing CT, but it would be an interesting complement to it, perhaps phasing in more and more as it beds in and improves in operation?

  8. Anonymous Coward
    Anonymous Coward

    100% tax

    In fact, 100% tax could be workable. It's called "communism" and is to be specifically and clearly differentiated from "Stalinism". Like most utopian notions (like capitalism) it only works on a small scale and only if the people involved are actually good at what they do.

    Meanwhile, back in the real world the govt should tax turnover at a low rate and forget the reams of tax-dodging wriggling over what "profit" means. Either that, or it should allow me to be taxed only on what I have left at the end of the year, not what I received.

    1. J P

      Re: 100% tax

      Read Dickens on profit - "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." Bring that back in spades for the business making a loss if you tax all income/turnover at a fixed percentage, instead of acknowledging that they don't even have enough cash to pay their own employees, let alone other peoples.

      Not even gonna go there on the arguments about sector specific rates based on average profit margins; VATs used in the flat rate scheme (nearest current proxy) range from 4% to 14.5% [see http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm#5 ] Administering that sort of thing as the sole form of business taxation in a way that doesn't drive small business to the wall (no economies of scale) and encourage all big business into high margin sectors would be just as complex as the current system, with all the joys of the transition into the bargain.

      1. Anonymous Coward
        Anonymous Coward

        Re: 100% tax

        "Bring that back in spades for the business making a loss if you tax all income/turnover at a fixed percentage"

        So what? I don't see the argument for the taxpayer supporting loss-making private businesses, which is what happens now. Why should losing money this year mean that you get to lower your tax next year, for example? I don't get to do that so why should Google or News International, or even the corner shop?

        There is no moral or rational basis to tax individuals on income but not companies.

        1. Anonymous Coward
          Anonymous Coward

          Re: 100% tax

          But there's zero moral basis to tax companies at all, they gain no benefit, and as Tim points out, they don't really bear the tax anyway. I'll repeat that, companies don't benefit, their shareholders, employees, and customers, do.

          The real value a society gets from a company is the value of the goods and/or services it provides in a competitive market that people willingly purchase. Is the real value of Google for example, the tax it pays (or doesn't, as the case may be), or the use of Google on the web, for as near as free as you can tell (putting up with adverts you can ignore) ? Would you rather pay for the searching so they can pay more tax ? Like hell you would.

          It seems to me that there are two reasons companies are taxed, one is that even if you recognize the tax incidence falls on shareholders, workers, customers etc, it is convenient and simple to tax companies (the "honest" approach). The other is that it appears that the great majority of people don't recognize that it is really them paying those company taxes and that it is a major con by governments along the lines that "someone else is paying", not you, so we can look so munificent and generous, so vote for us now (the dishonest approach).

          1. Anonymous Coward
            Anonymous Coward

            Re: 100% tax

            "But there's zero moral basis to tax companies at all, they gain no benefit, "

            Oh, right. I didn't realize that companies build all their own roads and only employ people from the own private schools.

            Wise up, son.

            "Would you rather pay for the searching so they can pay more tax ? Like hell you would."

            If Google can't stay in business doing what they're doing while paying their tax then let them go to the wall. Sod 'em.

  9. Anonymous Coward
    Anonymous Coward

    Tax avoidance/Evasion is corrpution to the maximum.

    I'm better than that. You can't buy my integrity. It's worht more than anyone could provide.

    Shame the scummy "people" out there have yet to learn that lesson. Scum.

  10. This post has been deleted by its author

  11. Anonymous Coward
    Boffin

    Low hanging fruit

    Its great to see an alternative view point being published but there is a thin line between being contrarian and being misleading. To take the easiest example lets look at the end of the article and the reference to the £4 billion windfall expected from the Swiss banks.

    The windfall was expected to come from a one off 21% to 40% levy on assets on accounts that were open between 2011 and May 2013, in return for which the depositors' slate with HMRC would be wiped clean. Those depositors were warned of the changes in advance of the law being implemented, so had the option of moving their assets, or of changing the ownership structure, to avoid the new legislation.

    Furthermore the Swiss rejected the principle of automatic exchange of information, so it is still down to HRMC to go knocking at the Swiss regulators door if they suspect that something has gone awry. A further restriction is that HMRC are only allowed to make 500 information requests per year.

    We should not be too surprised that the £4 Billion estimate was an eye catching headline rather than a feasible return. To suggest that the low return is proof that tax evasion via Switzerland was over-estimated is a huge stretch. For a start any evasion predating 1st January 2011 was not covered and remains protected by Swiss banking secrecy.

    A decent factsheet on the agreement can be found at http://www.out-law.com/en/topics/tax/tax-litigation--disputes-/the-ukswiss-agreement-over-taxation-of-undeclared-swiss-bank-accounts/

  12. Chris Miller

    "Gordon Brown tried to ban many from doing this"

    He did indeed, Tim - to no great effect as you point out. But just before this (around 2000, but I can't be bothered to look it up) the Treasury had the wizard wheeze that entrepreneurs needed help to establish start-ups. They therefore allowed the first £10,000 of profits for 'small' companies to be free of Corporation Tax. The result (who could possibly have guessed?) was that every window cleaner etc. incorporated themselves in order to increase their tax free allowance. A couple of years later the allowance was quietly withdrawn.

    1. MonkeyCee
      Thumb Down

      Re: "Gordon Brown tried to ban many from doing this"

      Or their other genius wheeze of giving you money when you filed online. 250 quid or something like that. Heard of an accountant who registered a couple of thousand businesses, did some trade between them (nothing illegal, no carousel fraud) and filed their paper work online.

  13. Version 1.0 Silver badge

    Taxation laws

    Generally I agree with the sentiment of this article. What's worth remembering is that the majority of tax laws doesn't exist to make anyone actually PAY taxes, they are written to help people avoid paying taxes.

    Since most of the laws are written (or rewritten) by politicians it's no wonder that the corporate entities run rings around them. If you can't "do" then teach, and if you can't teach ... then become a politician.

  14. Anonymous Coward
    Anonymous Coward

    "Yes, it's really true. The argument is about the shape of the curve, not its existence. "

    I'm not sure what the author is getting at here. Do some people refuse to believe in the existence of graphs? Even if you got the same tax dollars at every tax rate, the curve would still exist, it would just be a straight line.

    1. Chris Miller

      The certain points are that 0% and 100% tax rates both result in a tax take of zero. It's the shape of the curve in between that is the subject of debate. But as long as the curve is continuous, there must be a rate of tax that will deliver the maximum amount of money to the exchequer. Collecting a higher (or lower) rate of tax than this results in reduced revenues.

      1. JohnMurray

        Some people, many in fact, will avoid paying tax no matter what the rate of taxation. That fact alone makes the "laffer" curve largely irrelevant. the curve is based upon the theory that as taxation increases many people arrange their affairs to avoid tax....in this world they set-up their business/life to avoid tax no matter what the rate. Except for the common Joe...who has no money to "buy" complex avoidance routines, so pays the tax demanded. And of course, many companies get fined large amounts each year because their avoidance was actually evasion. It looks like a particular search giant may actually have used UK staff to makes sales in the UK, then claimed they were made in the RoI.....hopefully true...with a whacking fine arriving on their UK/RoI doorstep.....not forgetting that if HMRC can prove deliberate evasion/fraud, they can then go back many years and claim for them as well.....

  15. hammarbtyp

    No simple answers

    A good article and as the quote goes there are always simple answers to complex problems and they are always wrong.

    At the end of the day my opinion is that it is not a question of how much tax we can squeeze out of corporations but whether the playing fields are even. So a book distribution company based in the UK is unfairly penalized compared to amazon because it does not have the resources to do the tax shenanigans which amazon with it's army of accountants can do. As a result amazon can undercut the local opposition and eventually competition suffers.

    However I think a radically rethink of tax policy is required rather than what is proposed at present which is nothing more than politicians posturing. Maybe the problem is with the whole concept of capital gains tax. The more you think about it, it is a tax purely on profits, so penalizing success, which is a little strange. Also remember that big corps do pay tax in this country via income tax, NI etc. So maybe it is in those areas that we need to look and drop corporation tax to 0 or maybe VAT on sales as well as purchases? Non of these are in the least politically palatable whichever side of the divide you are on so I won't hold my breath.

    1. Al Jones

      Re: No simple answers

      Are you seriously suggesting that someone who buys a field, or a house, or a painting, or shares in a company and does nothing with it but leave it sitting there for 10 years until market conditions change, and then sells it for multiples of what he paid for it should not pay anything on that Capital Gain, while someone who makes the same amount of money over that same 10 year period by going to work and actually doing something productive should pay income tax?

      1. MartyH

        Re: No simple answers - yes there are - but lots won't like it.

        Sorry, there is a simple answer. Voluntary taxation. Tax evasion etc abolished at a stroke. Tax avoidance/evasion occurs because people and companies do not want to pay the taxes the governments demand - simple as that. They worked for the money, they want to keep it to spend it as they think fit. Of course, voluntary taxation is likely to see a significant reduction in Government Revenues - but why is that a bad thing? Perhaps I am being a tad idealistic but Governments exist to fulfil the will of the electorate - if the electorate are not willing to pay for something - then it is a pretty good indication they do not want it. There were no schools/hospitals/armies etc until private groups created them. Only later did Governments muscle in. If the governments stopped providing services tomorrow they would still exist. If there were no hospitals I would bet money that most individuals would be buying some form of insurance pretty quick. So essential services, that people wanted, would still run in some form. If that form does not meet your moral code - nothing stopping you from starting one that does - as long as you and others were prepared to pay the costs.

  16. Johan Bastiaansen
    Stop

    You answered the wrong question . . .

    We know these tax evasion schemes aren't illegal. But "not illegal" doesn't make it right.

    The question is: why are the tax laws like they are today? Because they were voted 50 years ago? So were traffic laws, but these were updated when needed. Why weren't the tax laws updated when needed?

    Because politicians prefer rich people and rich companies over their voters. Even most left wing politicians prefer rich people and rich companies over their voters. Votes can be bought by propaganda, but the sympathy from rich people and rich companies can only be bought by loopholes in the tax laws.

    The question is: how long are "the people" going to take this?

  17. Joe Gurman

    Sorry, but....

    I have to call bollocks. Let's see the evidence that any individual desists from any economic activity that would make them more net income, regardless of tax rate.

    1. RonWheeler

      Re: Sorry, but....

      Me. I rent out a buy to let flat. I've got the deposit together for another, but am rethinking as frankly the paperwork of the self-assessment plus the punitive taxes on the relatively small income make it a pain the the rear too far. Currently the deposit cash sits largely semi-dead in a stocks and shares ISA instead.

      1. Anonymous Coward
        Anonymous Coward

        Re: Sorry, but....

        "Buy to let" isn't "economic activity" in any meaningful sense.

  18. Pete 2 Silver badge

    It was never about tax

    All this talk about paying "fair" tax is merely a sop to the sound-bite addicted millions of people in the country who can't do sums.

    Even if all the companies involved in "scams" coughed at the same level that the average wage-earner does, it would still make bugger all difference to the government's expenditure plans. Raising a few billion, or a few tens of billions by grabbing these companies nuts and squeezing "until the pips squeak" is a drop in the pot compared to the half a TRILLION or more of revenue the government rakes in - and duly spends again - every year.

    Sure, an extra bil or two would allow someone to employ another 50,000 nurses, or policemen or paperclip benders(!), but unless that can be shown to have a tangible effect on anything except the paperclips it would not benefit the country as a whole. Specifically: would it do more good than the damage caused by having a bunch of multinationals pulling out and causing probably the same number of redundancies, as they leave the UK and go elsewhere?

    It does however, make an exceedingly good headline (provided the readers don't immediately go: Hmmm, and reach for their calculators - which, lets face it, the sorts of rabble who are so easily roused are hardly likely to do). And that's really all it was intended to do.

    1. Johan Bastiaansen
      Angel

      Re: It was never about tax

      Hey, they'll never miss my 2 pence either then eh...

  19. spamspamspam

    More to the point, why the hell is the aim to MAXIMISE the tax take?! That is completely arse-about-face. Surely the aim should be to raise the NECESSARY amount in the most efficient way possible?

  20. Anonymous Coward
    Anonymous Coward

    And yet you never hear anyone talking about all the jobs that these companies generate, and therefore, income taxes and payroll taxes. Add those to the equation, and Google, Microsoft etc. end up paying billions and billions of taxes.

    For me, that's quite enough, and I'd rather have companies paying low taxes, and keep jobs in the country, than the politicians trying to squeeze out every last penny, and have the companies move to other jurisdictions.

    1. Johan Bastiaansen
      Angel

      I can answer that for you . . .

      So the tax I'm paying, that's really the company that employs (employed actually), paying taxes eh?

      So when the government decided to raise taxes because of the crisis, that's really the company paying more taxes.

      And now everybody is looking at me, because hey, what's my contribution in the "war on crisis"?

      You sound like a father who announces to his offspring "no more pocket money for you kids, daddy is putting in his 2 pence against the crisis", then asks, "and what effort will you put in?"

    2. Mole5000

      Customers pay VAT, Employees pay income tax.

      At that ignores the concept that these multinationals are essentially parasitic and force out local competition by using their tax advantage to undercut local tax paying businesses. If Starbucks wasn't here then their place would be filled by local mum & dad coffee shops that probably wouldn't be using transfer pricing agreements to remove profit from the UK.

  21. Tom 35

    and rarer - than you think

    Not really. I know they are rare as they are setup to only work for the top few percent. If just anyone could use them it would hardly be a loophole.

  22. redhunter

    Career suicide

    I've been a corporate tax adviser for 20+ years and if I could I would put myself on the unemployment line by eliminating all taxes on business income. Why does a society want to handicap the engine of the economy with income taxes? Either tax consumption, transactions (VAT, sales/use tax, excise tax), or maybe personal non business income). Taxes drives business decisions as much as labor costs, intellectual property protections, or logistics. Businesses should live or die by the value of the products or services they provide and not by how their business is sliced and diced throughout the world to minimize income taxes. In the U.S. the combined federal and state corporate income tax rate is around 40%, which makes the U.K. and not just Ireland look like a tax haven.

    The other change I would make is to make tax transparent. Corporate transparency is always touted by a variety of groups - often the government. The same should by had in how a government taxes its people. Taxes collected via withholdings on a paycheck, VAT built into the sales price, or taxes collected by a third party "hide" the true amount of tax we all pay. If each of us had to separately pay taxes or at least have it itemized as a separate item we purchase, there would be a much different discussion about the role of government and the value of the services it provides. That is why ad valorem taxes (property taxes) are so unpopular because people have to separately pay the tax independent of any other transaction.

    1. Allan George Dyer Silver badge
      Paris Hilton

      Re: Career suicide

      "Why does a society want to handicap the engine of the economy with income taxes?"

      Because businesses use infrastructure and resources, benefiting from investments the rest of society make. This includes water, roads, refuse disposal; but it also includes healthy, educated workers. Public health services and education are some of the most important investments a society can make for its future. Businesses can choose to participate in society and its future by paying their fair share of tax. If they don't, they are parasites and should be treated as such.

      If you want an example of why not everything can be a consumption tax, consider the Police:

      "Officer, I've just been robbed. They took EVERYTHING!"

      "Yes, Sir, I'll need to take the details, and the £10000 Investigation Tax"

      "But they took EVERYTHING!!"

      ...

      1. Anonymous Coward
        Anonymous Coward

        Re: Career suicide

        Here is my insurance certificate officer, all bought and paid for. Now please explain why you did not prevent this burglury? Also find my goods and the perpetrators or I will move my business to another police company. Google the history of fire brigades - not perfect perhaps but I am sure you can do better.

  23. Eddy Ito

    Laffer Curve too simple

    Talking about the shape of the curve is pointless since all it does is plot a tax rate, the video mentions the top rate, vs. government revenue while ignoring the fact that the tax rate varies with income. Putting it into perspective, it's perfectly possible for the top tier to be 99% but the question becomes one of where it kicks in.

    A lot of people like to talk about top historical rates being much higher like "Oh back in 1936 the top rate was 79% and folks got along just fine." What they don't say is that rate applied to folks who made $5,000,000 in 1936. Today that income would be equal to $82.5M or, for a 40 hour work week, a bit over $39,000/hr in the middle of the depression. I can't but wonder how many people were paying this rate.

    Compare more common incomes today and adjust backward for inflation to 1936 tax rates and folks making $50k pay 4%, $75k is 8%, $100k is 9%, $200k is 12%, $500k pays 23% and working up to a modern $1M makes the 39% bracket. Does anyone know anyone earning $100k and being in the 9% bracket? That's 9% U.S. Federal income tax, not 9% California income tax.

    And there's the rub, the tax brackets don't keep pace with inflation. Folks are paying a lot more in taxes for the same net pay. It kind of makes the Laffer Curve a bit laughable if you just plot the top tier tax rate if it doesn't effect anyone.

    1. Tim Worstal

      Re: Laffer Curve too simple

      Indeed:

      "the tax brackets don't keep pace with inflation"

      Known, technically, as "fiscal drag".

      BTW, the number of people paying that top US income tax rate way back was "1".

      John D Rockefeller.

  24. Anonymous Coward
    Anonymous Coward

    Slight weakness in the argument here

    "At the margin, where we already take 40 per cent of GDP in tax, that deadweight might rise to one-third or so. Given that at least some of what the government does is worth more than 130 per cent of what the taxpayers themselves would do with the money, this is fine."

    Really? You REALLY believe that the government gets 30 per cent better value for money than a taxpayer would if he kept it? Even allowing for the huge overhead costs of millions of government employees, buildings, equipment, and all the salaries and perks that government employees earn? Even allowing for the obvious gross inefficiency of most government projects?

    1. Al Jones

      Re: Slight weakness in the argument here

      Is it more efficient have "wasteful" government build a public road network, or to have a toll barrier and toll collector at the end of every street? Is it more efficient for you to employ private tutors to teach your kids in your home, or to have "wasteful" government build schools and tech them there? Is it more efficient for you to build your own water treatment system or to have a wasteful government provide a centralized system, with the capital costs spread over the populace.

      Many of these services started as small private businesses (education, electricity, fire brigades. telephones), but most of them became government run because it was recognized that the country as a whole would be better off if everyone had reasonable access to these services, and private companies simply couldn't deliver at the scale that was needed.

      Many of these services are returning to the private sector, but that's not always an improvement.

      1. Anonymous Coward
        Anonymous Coward

        Re: Slight weakness in the argument here

        "it was recognized that the country" - recognised by whom? Not by the people who have to pick up the bill - you can bet that! They were given no say. You slightly misrepresent the situation. Hospitals were not taken over because Government would run them better. They were taken over to cater to the population groups that did not want to pay the price of providing for their own health care. There were friendly societies etc that provided funding for health care but there were groups, e.g. the mentally ill, who would not be covered. This was deemed unacceptable by various individuals in governement - but not as unacceptable as those individuals providing the money from their own pockets.

        1. Anonymous Coward
          Anonymous Coward

          Re: Slight weakness in the argument here

          " Hospitals were not taken over because Government would run them better."

          I don't know about hospitals, but I do know that the UK railways were nationalised because the private owners were making a mess of them (much like they are right now, having been sold off to fund tax cuts for the rich). And the electricity companies. And more.

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