Tech giants looking for ways to wriggle out of UK digital tax, watchdog warns

Britain's parliamentary spending watchdog has warned that tech giants are set to "circumvent" the government's digital tax regime despite what appeared to be a successful introduction. In a report published today, the Public Accounts Committee (PAC) said that tax receipts for the first year (2020-21) of the UK's Digital …

[Eclectic Man]

HMRC

I wish HMRC the best of luck, but I suspect that the multinational digital services companies will be several steps ahead of them when it comes to taxation. This in a country where the duchies of Lancaster and of Cornwall pay no CGT or Corporation tax because they are the 'private' businesses of the monarch and the heir to the throne (https://www.theguardian.com/uk-news/ng-interactive/2023/apr/05/revealed-royals-took-more-than-1bn-income-from-controversial-estates-king-charles-queen-duchies-cornwall-lancaster) but people living in social housing cannot get the landlords (sometimes local councils) to keep them in good enough repair to prevent mould (which killed a little child recently: https://www.independent.co.uk/news/uk/home-news/awaab-ishak-death-mould-housing-b2225448.html).

I have little confidence in multi-millionaire politicians with great wealth in tax havens in effectively challenging tax loopholes for companies. Let's hope I'm wrong.

[Anonymous Coward]

Re: HMRC

It would be a lot easier if tax was just tax and didn't have shit loads of complicated rules, exceptions etc.

The whole system needs to be scrapped and re-thought.

[Anonymous Coward]

Re: HMRC

Most tax laws are actually written by consultants that are seconded over from PWC, Accenture etc. They have a business aim to make them as complicated as possible so that their auditing and accountancy arms can charge clients a fortune.

There is a revolving door of staff from HMRC to the Big 4 and back, with the consultancies offering freebees to HMRC and Govt to get their staff in place.

Image what would happen to the Big 4 if you reduced tax rules to:

If you earn up to £10k you pay nothing

10k - 50k - X% (no NI or any of that malarky)

50k+ Y% - no NI or anything

150k+ Z% - no NI or anything.

Business taxes a flat X% with no offshoring or trust funds or any of that malarky.

No VAT but a sales tax charged on WHERE the sale is made so even if your HQ is in Delaware, the fact that your customer is in the UK means that the tax is paid here BEFORE it's taken away to wherever.

No loop holes, no way of hiding your money in offshore trust funds or anything like that. The only way of TRULY reducing your tax would be by investing in training and research INSIDE the UK...happy days done.

watch the accountants scream

[Missing Semicolon]

Re: HMRC

But then you have to define profit. Upon that definition hinges your tax.

What the multinational corporations do is ensure that there are costs that are only slightly less than revenue, so minimal profit is made. You therefore need complex rules to define what costs can be deducted before profit is calculated.

A lot of the stupid tax law is part of the whack-a-mole process of preventing tax evasion.

[Anonymous Coward]

Re: HMRC

And charge the same tax on dividends as all other income. Gets rid of all the IR35 nonsense.

[katrinab]

Re: HMRC

The complicated rules are mostly about how you calculate your income, not which tax rate you apply to it. Your proposal doesn’t do anything about that.

[Binraider]

Re: HMRC

Complex, in order to protect the aforementioned multinationals and megawealthy while simultaneously shafting mere mortals.

[NeilPost]

Re: HMRC

Good legislation, properly drafted, properly reviewed is your friend here…. so it’s probably already a lost cause….

Many of the decent Civil Servants have been pushed out as not being Government Toadies - or are now wasting their lives on the EU Retained Law’s bullshit bonfire that is going on right now.

[low_resolution_foxxes]

Bigger question: why are so many high street shops empty - with the exception of so many charity shops?

Council rates are charged on rent. So typically if you pay £10kpa in rent, you have to give the council £3-5kpa in tax.

If you can buy something online, at scale and with fewer costs/overheads, it's no wonder that the high street is considerably more expensive. And of course, the council does not charge charity shops, so the net result is our high streets are cluttered with charity shops.

My favourite example is the Northern lad who converted a disused underground public toilet into a small cocktail bar. Only to find the council changed his tax rate from £3kpa to £24kpa.

He'll need to sell 5000+ cocktails annually just to cover the council tax rates.

That is what the councils are fighting for. They are fighting for their right to gouge the public by forcing them to use the shops. It's only mafia-like. The difference being that Amazon can happily put their shipping locations in the middle of nowhere and the cost per package ends up being relatively low.

[Anonymous Coward]

re: They are fighting for their right to gouge the public

Don't forget charging you an arm and a leg to park anywhere near the shops that they are driving out of business.

There is an ASDA near me. Their car park is run by a private company who stomp on infringers. I even got a ticket for parking my Motorcycle for 1hr even if none of their displays (or their app) has the facility or rate for motorcycles...

The council run car park on the other side of the town centre is 30% more than the ASDA one. It is never more than 25% full.

People have got royally fed up with their gestapo tactics so they park in car park 100yds away that gives 2hrs free parking. People will vote with their feet.

The next door town offers free town centre parking on a sunday. Guess where I do my shopping.

[MachDiamond]

Re: re: They are fighting for their right to gouge the public

"There is an ASDA near me. Their car park is run by a private company who stomp on infringers."

How much do you want to bet that ASDA gets a cut of the parking revenue and set up the store/parking arrangement as a way to outsource the maintenance and liability.

If I have to pay to park so I can shop, I don't go to that place for my shopping. There are too many options these days both online and just up the road.

The local Chinese tat store that also sells some groceries is expensive and limited. I only shop there when I need one or two things and do my main shopping a fair distance away at the co-op where the prices are much lower and they have a huge selection. It works for me as I'm moderately well organized and keep shopping lists on my phone that I'll add to as I see things I need/want. That way if I find myself near the hardware store, I have my list with me and can stop in and avoid a dedicated trip. If I need something right away, I'll check my lists to see if I also need something from a shop nearby.

[Anonymous Coward]

whinge whinge whinge whinge whinge. Everyone wants the services but no one is willing to pay!

My Local council has had a 40% cut in money from central Govt in the last 10 years, Liverpool was 80% I think. Although shockingly if you're a tory council, your funding hasn't dropped that much.

What everyone forgets to mention in the high street debacle is the role of Private Equity over the noughties and teens.

Take a firm that owns it's own stores

Get some money off your rich mates

Borrow 10* that money from the banks

Buy said firm, with a promise to the board of massive bonuses if they green light the buyout

Sell all the stores and rent them back with long term rents

Take out HUGE loans against the stock of the firm

MAke the firm take out large loans for "consultancy" from your Private Equity firm

Pay out huge dividends to your mates that you borrowed the money from

Fire 2/3 or more of the staff

Roll it for 5 years and then sell off the firm and run off with the money while it inevitably goes bankrupt and the tax payer has to pick up the mess

Blame Amazon and council tax rates

Rinse Repeat.

[Anonymous Coward]

Taken from the course syllabus of most BA in Business Studies and similarly named courses.

[MachDiamond]

"Sell all the stores and rent them back with long term rents"

I see that a lot in the commercial property listings. The chain buy the land for cash at a sweet price, builds the store to fit their needs and then sells the store with a long term lease as part of the sale with the right to renew the lease. On the flip side, I expect there are several loopholes they can use to break said lease. This process lets the company move the monthly payment from capital assets to expenses and frees up a bunch of capital to build some more stores. Lather, Rinse, Repeat.

[katrinab]

It also lets them shift most of their profits offshore.

Set up three companies, a trading company, a property company, and a finance company.

Trading company is onshore. Rent paid to the property company is an allowable expense. They pay tax on what’s left over, usually nothing.

Property company is offshore. Mortgage interest is an allowable expense. Although they are offshore, they still have to pay tax on the rental profit because the property is onshore. But it doesn’t make a profit after paying the interest, so no tax to pay.

Finance company is offshore. It receives interest income from another offshore company so completely outside the scope of tax in the onshore location. If the borrower was onshore it would have to deduct tax from the interest payments before paying them over.

[MachDiamond]

"Set up three companies, a trading company, a property company, and a finance company."

This is pretty much what gets done. Most of the 'profits' are earned by the division in the lowest tax rate country. The distribution company in country only makes a small profit due to needing to buy the product from the main company in the other country at a price that leaves little margin. The manufacturing division might also earn very little due to selling the product to the main tax rationalized office for a low price.

There's nothing illegal about these setups and the people calling for the companies to pay their 'fair share' need to understand that there is no 'fair', just legal and illegal. Welcome to the real world and nothing you believe when you were at uni applies anymore. What I see is little value in a country trying to shake down large multi-national companies for heaps of tax money when they are operated by people many times more intelligent than the average politician. People pay tax so there is little advantage to assessing high tax rates on corporate income which just chases those companies to regions with the lowest taxes. Is Ireland still the best or really good tax location to base a company? The company can still have highly compensated executives in the US, Europe or the UK who will be paying local taxes on their income while the corporation makes their money in Ireland. The companies aren't cheating, they are playing by the rules, but the game has been set up by idiots and there may be no good way to rig it anyway.

[Dan 55]

That is what the councils are fighting for. They are fighting for their right to gouge the public by forcing them to use the shops.

Central government funding has been slashed over the past decade, council tax bands are based on property values as they were 32 years ago, this is the end result as money for services has to come from somewhere. It would be a surprise if the system wasn't completely broken.

The one thing that does work though is that central government has successfully directed everyone's ire towards their council.

[MachDiamond]

"this is the end result as money for services has to come from somewhere."

But, the services the council provides have been expanded to use up the money they've been able to extract from elsewhere. For regular people, we can only support charity when we have that money to spend. The primary duty and budgets should go towards infrastructure and the common things that everybody uses/needs. There's charity and then there's being taxed to death for the government to provide excessive charity.

[Libertarian Voice]

Parking

Anti car councils are the cause of town centre decline. Online shopping is merely a symptom.

[MachDiamond]

Re: Parking

"Anti car councils are the cause of town centre decline."

There's no point in going to the city center to do your shopping when you know there won't be any place to park. Even if you can get there on foot, do you want to carry your shopping home? Will you get back quickly enough on a hot summer day so the ice cream doesn't melt? That's always bites since it goes hard as a rock when it refreezes.

[Anonymous Coward]

Really?

HMRC has an extremely strong track record on multinational tax compliance

M'Lord, I would strongly disagree with that statement. The frankly pitiful efforts to tax the likes of Google and especially Amazon have failed miserably. For Amazon to pay next to no UK tax on their profits from the UK biz is in the record for all to see.

HMRC are a bunch of useless twats when it comes to taxing foreign owned businesses... When it comes to legislation like IR 35 where their victims do not have legions of highly paid lawyer on speed dial they get results.

[NeilPost]

Re: Really?

Amazon, Google, Apple, Microsoft, Thames Water, Shell etc “pay all legal UK taxes”.

The problem is the “all legal taxes”… so… Sort out the loopholes, rebates and washing revenues through other counties. Partly an aim of the OECD Global Tax Regime.

* does not help anyone either when the Irish State takes the Irish Tax And Revenue to court to overturn an EU directive on Apple paying about €15bn in court ordered tax to the Irish Tax and Revenue (aka the Irish State).

[ShortLegs]

What is with the word "rightful" before 'revenue' in that article? There is nothing rightful about tax revenue.

[jdiebdhidbsusbvwbsidnsoskebid]

Rightfulr revenue

"What is with the word "rightful" before 'revenue' in that article? There is nothing rightful about tax revenue."

How do you propose to pay for everything then?

[Dan 55]

Re: Rightfulr revenue

Don't bother to ask, everything is fine, they're happy living in country falling apart at the seams.

[MachDiamond]

Re: Rightfulr revenue

"Don't bother to ask, everything is fine, they're happy living in country falling apart at the seams."

Everywhere is always falling apart at the seems.

When I'm short on money I can't go to the bank and demand they give me more, I have to find ways to economize. I have to do without things that I don't need. There have been times when that's lead to some painful decisions, lots of ramen noodles and pasta/cheese dinners. I've learned to plan better, put money away just in case and spend more carefully. Government needs to do the same. There are things that are the proper domain for government and things that should be left to private industry. People can give to charity if their money isn't being confiscated by government to give to charity less administration fees.

When I had a manufacturing company, there were a couple of times when somebody came by hat in hand needing some work to be able to buy food. There was always something that needed doing even if it was just sweeping up so I'd give them some food as I kept food at the shop since I ended up eating meals there often enough and some cash for their work. I couldn't take them on full time or even part time, but the honest appeal for some assistance was within my means. That's what you do. That's not what a government should be doing on a large scale. Help people out for a limited time, sure. For the rest of their life and their children and their underage fatherless children's children, hell no.

[stiine]

Did I read this correctly?

"HMRC has yet to identify any non-compliance and it is not yet clear if HMRC has captured all groups that should be within scope for the tax,"

If they don't already know EXACTLY which companies are subject to this tax, they have a bigger problem, its incompetence, and its them.

[NeilPost]

Re: Did I read this correctly?

It’s as Govt policy headcount reductions in those areas… whilst hounding and wielding their full prosecution powers the little people for small amounts that compounds this.

[Tron]

Relax. The government will find a way to make up for all the public money they waste.

What about the double taxation we now face buying things from abroad, paying sales tax there and import duties when we pay for it on ebay. Cheers for that, tossers. I'll remember that when I vote.

Plus, taxes should be the same throughout a nation. Taxing people extra to drive into cities, when they already pay road tax, is being implemented by elected local councillors. It might get them unelected.

Pensioner devastated he 'won't be able to visit his parents' graves' due to £12.50 charge.

https://www.express.co.uk/life-style/cars/1743914/ULEZ-charge-London-drivers-anger-Upminster-Cemetery

Children facing long waits for spinal surgery - 'The BBC understands the delays are partly down to parking and clean air zone costs leading to nurse shortages.'

https://www.bbc.co.uk/news/uk-england-somerset-65167519

Anyone operating a business or living near the edge of a ULEZ is going to get financially shafted driving locally, with a reduction in the value and saleability of their home, and a need to surcharge a percentage of their customers if they have to cross the new border to get to them. There will need to be more car parks either side of the ULEZ border too, or everyone will just park on residential streets, walk across and get an uber or taxi for the rest of their journey. And everywhere will soon be implementing them, because they bring in cash. You could be paying half a dozen charges soon going for a day out at the seaside with the kids, if you don't have an EV. First they stop us moving freely across borders within the EU, removing freedom of movement at Brexit, then they charge us at multiple regional and local borders.

How convenient that the party that gave us Boris 'f*ck business' Johnson, now have an excuse to ignore the CBI.

[Anonymous Coward]

Re: Relax. The government will find a way to make up for all the public money they waste.

The parking issues are nationwide where hospitals are near town centres and shoppers use(d) them as parking was cheaper in the hospital than in the town centre shoppers car parks.

I know of at least one trust where the clean air zone costs were simply added to wages to alleviate the problem. (Simple and effective action from the NHS - who would have thought?)

Spinal surgery has always been a lottery. I found out 5 years after being refused surgery that had I been referred to consultant B rather than consultant A (who the Dr. played golf with) that I would have been given the surgery that would have restored me to a level where I could exercise again (full recovery is never guaranteed in spinal surgery, but getting what is classed as emergency surgery is certainly better than being told that effectively your active life is over.)

Anon as most of my family are "in the trade"

[xyz123]

Simple problems require simple solutions.

Oh you're importing goods and claiming to be based in the US whilst you have a warehouse in grimsby?

50% import tax for you.

try to avoid import tax? thats 5000% import tax then. that can't be passed onto customers.

STILL try to avoid tax? thats 5x your anual gross turnover...oh you collapsed...well at least you're a lesson to other companies...

[TonyJ]

"...Oh you're importing goods and claiming to be based in the US whilst you have a warehouse in grimsby?

50% import tax for you.

try to avoid import tax? thats 5000% import tax then. that can't be passed onto customers.

STILL try to avoid tax? thats 5x your anual gross turnover...oh you collapsed...well at least you're a lesson to other companies..."

On the one hand yes. On the other, they will just up stakes and move, leaving people unemployed (and as the P&O debacle showed, there's no reason anymore to follow redundancy law - you won't get prosecuted and a year or so later you will, in all likelihood get offered a chunk of a multibillion £ public purse project).

Lower taxes can be used as an incentive to bring companies in (note - lower, not fuck-all) and too high will drive them away. There is a balance which we are far from hitting yet.

[Anonymous Coward]

They won't though.

I remember the arguments about going after Vodafone for the tax they owed.

Everyone saying that Vodafone will leave the country, they'll fire everyone, blah blah blah blah blah blah blah

At the time Vodafone was making £9 billion from the UK Market......the board would be crucified if they walked away from that money.

Even if they HAD left, their customer were never going to go: "well Vodafone have left, I guess I'm never going to have a mobile phone again ever"

They would have moved that £9 billion to Orange or BT Cellnet as they were at the time. Those firms would have to hire more staff and open new stores as well as engineers to upgrade and maintain the extra customers etc.

No firm is going to up stakes and leave over a tax bill..they'll threaten it and cry and shout like little girls but they WON'T leave.

Even if they DO...those staff will find jobs in other businesses that have picked up the customers from the crying babies.

[Persona]

No firm is going to up stakes and leave over a tax bill

Of course they are. Were you to tax them 100% of profits they would have no incentive to do business in that tax regime. Imagine if your employer cut your take home pay to zero. You would undoubtedly up sticks and leave. But if they just took you down by a few percent you might be more inclined to stay.

There is always a level at which changes to a tax regime will cause a change.

[Libertarian Voice]

Manufacturing in low tax light touch regulation regimes and then exporting to the UK was the way business used to operate before we left the EU. Now we are out of the single market that is not quite as easy.

[MachDiamond]

"Lower taxes can be used as an incentive to bring companies in (note - lower, not fuck-all) and too high will drive them away."

It depends on the tax and people pay tax, not companies. Companies factor the tax into their calculations and mark up the prices they have to charge. When they overcompensate their C-level execs, that's where the taxes should be targeted. Money in circulation has a multiplying effect. If it goes straight from some corporation to the government to be wasted, it won't see that multiplying effect. It's nice to have some buffer, but companies don't benefit very much from having large bank balances so it's not worth worrying about them hoarding cash and skewing the system.

[Fred Daggy]

Close, but no banana flavoured food additives.

Bump up the VAT/GST/Sales tax on the goods in question. All of them. Reduce taxes on wages and investment income in compensation. Local outfit then can claim the VAT back. Importer can't. Levels the playing field.

"Offshore" unit then claims is back in the low tax country.

(Probably some fine print about where the re-charge then occurs - because simple, cheap, effective, pick and 2 and Murphy).

[MachDiamond]

"Bump up the VAT/GST/Sales tax on the goods in question. All of them."

That's just taxing consumption and penalizing people for keeping money in circulation. I'm not in favor of taxing necessities. Fizzy drinks, yes. Milk, no. Fresh fruit and veg, no. Ready meals, yes. If you want them, you have to pay a bit of a premium. Do the cooking yourself and you save some coin and it incentivizes people eating healthier lowering the impact on national health services.

I've also got an inkling on how to game your VAT clawback scheme.

[xyz]

Can't be long now...

Before the "country" idea becomes redundant and you sign up as a citizen of Googlopia or whatever, and they do the service provisioning that a country government used to do.*

Sort of e-feudalism if you like, but at least it gets rid of that bunch of incompetent chancers aka politicians and associated state hugging extortionists aka HMRC. Even the Mafia gives you "protection" in return for cash and without the "world class" adoration required by the pompous and privilaged.

*apologies for the Oxford comma

[SundogUK]

All taxation is theft.

See title.

[Potemkine!]

Re: All taxation is theft.

Property is theft.

[SundogUK]

Re: All taxation is theft.

Only seven down-votes? Come on commies. you can do better than that.

[Anonymous Coward]

Re: All taxation is theft.

RWNJ meltdown.

[MachDiamond]

Re: All taxation is theft.

It can be and we keep seeing more that is, but some is necessary for the running of any rational society. I have the ability to make money due to there being roads to get from my house to job sites. It's also good that there are laws to regulate motor vehicle travel and officers to enforce those laws. If I have a health emergency or my garage catches fire, I can make a call and emergency services will be sent. It's also good that they'll also go to a neighbor's house a block away and put out the fire there before it becomes a big problem for me as well. I have never had my house catch on fire, but there have been fires near my house so I have benefited from a publicly funded fire brigade.

If the money that's taken from me in taxes is used to pay somebody else's house payment or their car or send their kids to college, I can agree that it's theft.

[MrGreen]

Tax is a Scam

Tax is only there to keep the little people down.

[s. pam]

Why not just do it the Amazon way!

We don't have a presense in the UK!

Ignore those buildings, they're not ours!

Those groups of people? They're volunteers touring those buildings.

[Anonymous Coward]

Re: Why not just do it the Amazon way!

And all that stuff in all those building? No, no, no… your eyes deceive you, it’s in Luxembourg where you bought it from..

[Persona]

Re: Why not just do it the Amazon way!

In 2021 Amazon paid £492m in direct UK tax.

[MachDiamond]

Re: Why not just do it the Amazon way!

"In 2021 Amazon paid £492m in direct UK tax."

If you bought anything from Amazon, are you now feeling a bit guilty about it? No doubt the small trader you may have been able to purchase the same items from when there were small traders wouldn't have been able to shield any of their income from taxes.

It's easy for Amazon. The item you bought for £10 was sold to the UK division for £9.50 from the Ireland division who had that item made in China specifically for Amazon for 50p including shipping. The Ireland division sent part of that profit to the US main company as a franchise payment to fund US operations and make the US exchange traded stocks look really awesome so the execs see a big payday when they exercise their options. The company itself just scratches along.