Facebook pays, er, nope, gets £11m credit from UK taxman HMRC... Facebook has bragged about its "efficient tax structure" in the UK after it was revealed the megacorporation actually earned £11m in tax credits to be offset against future claims from Her Majesty's Revenue and Customs. An update to Facebook's accounts on Companies House [PDF] this weekend revealed that Facebook paid just over …
That's only sort of true. In fact, it's true, but completely misleading and beside the point.
These enormous companies can hire battalions of accountants - often the very same accountants that *wrote* the tax law a year previously to find all the ways through the maze.
And then, of course, they have huge lobbying efforts to make sure that the politicians don't pass any laws detrimental to their interests. They game the system top and bottom.
So, in saying that it's the responsibility of the lawmakers to ensure the laws make them pay is at best naive, and at worst, well...
I hesitate to suggest that an anonymous coward might be employed by a PR company to put out a line that sounds trivially plausible but is in fact designed to mislead. I really do. Truly. That would never be the case, surely.
So who's fault is it exactly? "Facebook" isn't a person (despite insane US laws on corporate personhood), so you cannot accurately say that it's "Facebook's" fault.
If you're an accountant employed by a company to minimise it's tax liability, do you minimise it tax liability to the full extent that is legal, or do you say to your employer, "actually, despite us being legally entitled to claim some tax back, I think we shouldn't do that".
If you're a shareholder in a company, would you typically want/expect that company to maximise it's profits or not?
I think "it's Facebook's fault" or "it's HMRC's fault" is way too simplistic - the problem is inherent in the system that we have, and the only way of changing it is through systematic change in how tax is collected.
The big 4 accountancy co's (who also do the tax auditing of these big companies), spend a *huge* amount of time lobbying and gaming the system. Google's lobbying is very well known: they love-bomb the US and UK legislators and executive constantly to ensure the 'right' laws are passed. I'm less familiar with Facebook's activity in this area. Might well be that they are (ironically) 'free-riders' on the lobbying effort. Suspect not.
Don't forget, too, that Theresa 'hit the fatcats' May's cabinet contains 27 millionaires. Are they going to vote against their financial interests? I'm inclined to doubt it.
Both US presidential candidates have benefitted from hugely complex tax law too: Trump famously 'possibly' not paying income tax for up to 18 years. And then he pointed out that the Clintons did exactly the same. They are all in it together. And we aren't.
And yes, systematic change in how tax is levied and collected is the only option. Requiring transnational co-operation and continent-wide organisations focused on that laudable goal.
So, the closest we had to that was the EU.
And they tended to be on the side of the fat cats anyway. Bugger.
I genuinely don't know how you might change this.
Suggestions?
Alternatively stop trying to tax companies as a big multinational can make profits or losses realize in any country they choose. Instead make sure you tax the employees, apply VAT in the country of the buyer (or advert clicker), and most importantly tax the shareholder dividends and capital gains on the shares as if they are income not some magical reward for investing in the company.
@Anon...
"Alternatively stop trying to tax companies as a big multinational can make profits or losses realize in any country they choose."
>> With you so far.
Instead make sure you tax the employees, apply VAT in the country of the buyer (or advert clicker)
>> Uh uh.. So put income tax up? Are you linking this policy to a mandatory rise in Pay? Or are you expecting all employees to take a pay cut?
Also, As you pointed out above companies can make and realise profits anywhere they want, this is also true of staff... companies can opt not to employ people in the UK where due to Minimum wage/NI contributions, Pensions etc it is expensive and instead hire an entire workforce in East Elbonia where labor is cheap.
"and most importantly tax the shareholder dividends and capital gains on the shares as if they are income not some magical reward for investing in the company."
>> Three consequences of that off the top of my head:
1. Small companies suddenly become more expensive to run.
2. People stop investing in companies because its no longer worth it.
3. Shareholders no longer pay ANY tax on dividends because suddenly their bank accounts are in the Cayman islands. *
Its already worth it for really rich people, your just making it more attractive for moderately well paid people.
@d3vy - nope I'm not suggesting you put income tax up just stop some of the "creative" ways big companies and governments for that matter get around "paying" their top direct and indirect staff so that their income tax bill is drastically reduced.
There are lots of reasons for basing your company on the UK instead of East Elbonia, not least of which it's hard to get your top talent to relocate to a mud hole. A higher wage bill can be money well spent. Also if UK companies paid no company tax it would remain an very attractive place to head up your business even if the employees couldn't avoid tax on their pay and shares.
As for the numbered questions:
1 Freed from the burden of company tax small companies should do well. The tax is just shifted to the dividend paid to the shareholder.
2 Freed of their tax burden the companies will make more profit that goes back to the shareholders as a bigger dividend.
3 Fine if they are living in the Caymen islands, they can have their bank accounts there and pay tax there but if they are tax resident in the UK they will be taxed on their foreign earnings.
The moderately well of people don't bother with off shore accounts. They are too busy getting on with life to ever get around to minimizing their tax bill.
"@d3vy - nope I'm not suggesting you put income tax up just stop some of the "creative" ways big companies and governments for that matter get around "paying" their top direct and indirect staff so that their income tax bill is drastically reduced.
>> But your suggestion was to "Instead make sure you tax the employees", you didn't specify only the top earners. I may has mis-interpreted your intent, It sounded to me like you were proposing removing UK corporation tax and increasing the tax employees pay, basically shifting the tax burden onto the people who cannot take advantage of the tax loop holes.
There are lots of reasons for basing your company on the UK instead of East Elbonia, not least of which it's hard to get your top talent to relocate to a mud hole.
>> Agreed, but I used Elbonia as an example, replace it with Deli.. or Shenzhen Plenty of talent there and low rates.
A higher wage bill can be money well spent. Also if UK companies paid no company tax it would remain an very attractive place to head up your business even if the employees couldn't avoid tax on their pay and shares.
>> You forget that with an increased wage bill the company becomes liable for more payments too.
Employers NI, PAYE and pension contributions would all increase as a result of a wage increase (not to mention the increased cost of sick pay, Maternity, Redundancy).
As for the numbered questions:
1 Freed from the burden of company tax small companies should do well. The tax is just shifted to the dividend paid to the shareholder.
>> The types of small business I was thinking of the "Company" and the shareholder would be more or less the same. Think small family run shops.. A husband and wife running a shop 50/50 share split, all you have done there is remove their corporation tax and increase their income tax, probably by similar amounts, no one is better or worse off and the shareholders of whichever FTSE100 company you want to mention STILL doesnt pay anything as they are not resident in the UK.
2 Freed of their tax burden the companies will make more profit that goes back to the shareholders as a bigger dividend.
>>See my answer above, youve just moved the tax burden from one entity to x individuals.
3 Fine if they are living in the Caymen islands, they can have their bank accounts there and pay tax there but if they are tax resident in the UK they will be taxed on their foreign earnings.
>> Ok... But that kind of goes against your point as facebook are based overseas, youve basically just said OK let them stop paying Corporation tax (the only tax we do get from them) and let their shareholders pay tax in their country of residence - which isnt the UK. So the UK still fails to collect any tax from any of their business activities.
The moderately well of people don't bother with off shore accounts. They are too busy getting on with life to ever get around to minimizing their tax bill.
>> I dont think thats entirely accurate. There are plenty of ways that "Normal" people can avoid tax and Im fairly sure a decent number of people do it.
The problem is, as always, TAX is complicated. Making a change to benefit one group often requires another group to take a hit somewhere... We could get rid of corporation tax* but then without imposing restrictions on how employees and shareholders and remunerated** its just going to mean less tax paid to HMRC.
* Being a contractor Im all for that, I'd get another £15k a year - but HMRC wouldn't see a penny - It would go straight into my pension.
** Which as stated above could be almost impossible given the shareholders will not always be employees/actual people (the shareholder could well be a pension fund).
Abolish all tax except VAT, which is imposed on all transactions. Annual budget speech takes about 2 minutes, expected GDP divided by expected govt expenditure multiplied by 100 = VAT rate. Curently about 40%. But I do mean ALL transactions. Want to invest umpty-billion you don't have in an off-shore vehicle then sell a millisecond later? That's fine, but we'll have 40% thanks. Obviously welfare payments would have to take account of increased retail prices, and currency controls imposed to prevent cash earned here being spent elsewhere. Simples.
@philthane
Ok, like so many others you fail to take into account the complexities of tax... VAT is charged at different rates for different products, so most stuff its 20%, for Gas etc its 5% most food and kids clothes etc its Zero rated.
So are you saying that you want to put pensioners gas bills up by 20%, I cant see your election campaign lasting too long...
Also bear in mind that VAT is only payable on transactions inside the EU, this would be another change in tax that has good intentions but would only affect people without the means to work around it.
You also fail to take into account that income tax is banded, so low earners pay a smaller (if any) amount of tax than high earners, youre proposing leveling the same tax on someone earning £11k a year as someone earning £11k a month, doesnt sound right when you say it out loud does it?
American Economist Henry George figured it all out a century ago - all taxation as Land Value Tax.
If people in the UK want to use the free ad supported social network service created by Facebook with their Californian workforce rather a (fictional) UK social network 'Teabook'... then so be it. If facebook and their advertisers can avoid using any UK land to supply their goods and services, then those services will be cheaper than local ones using UK land. But those cheaper savings will be passed on to UK consumers... assuming Facebook and their advertisers do not have monopoly powers.
I think "it's Facebook's fault" or "it's HMRC's fault" is way too simplistic - the problem is inherent in the system that we have, and the only way of changing it is through systematic change in how tax is collected.
No, it is definitely Facebook's fault. No one else. There is no law requiring them to arrange their business to minimise their tax: they choose to do that. In response, I choose not to do business with any company which does not pay a "reasonable" amount of tax. If they want my business they will need to show they are paying considerably more tax in the UK.
Just because their actions are legal does not mean that their actions are necessarily in the best interests of their business.
Hear hear. On a similar note, this is why I've not purchased anything from Amazon for 2 years or so - I don't like their monopolistic tendencies, I don't like the way they treat their staff, and I don't like the way they avoid tax in the UK. So I shop elsewhere.
I nursed a strong dislike of Facebook before this article, too.
Eh?
<quote>There is no law requiring them to arrange their business to minimise their tax: they choose to do that.</quote>
I'm pretty sure their shareholders require them to make a good profit. BTW, the shareholders aren't necessarily fat cats or millionaires, they are people like you and me with pensions.
<quote>I choose not to do business with any company which does not pay a "reasonable" amount of tax</quote>
Well one man's definition of reasonable could be another man's definition of over the top. The government sets the rules, the businesses follow the rules whilst maximising profits.
However, if the government tightens the rules then the corporations move money around and setup infrastructure in countries where the rules benefit their bottom line.
But, fear not as our unelected PM, and her elite bashing elitists will sort this out, without bothering our sovereign parliament with any of this pesky shenanigans.
And then, of course, they have huge lobbying efforts to make sure that the politicians don't pass any laws detrimental to their interests.
Their strategy departments have determined that this is insufficient in the near future. That is why they are now lobbying to make any such passing illegal even if the politicians decide to do so. TTP, TTIP and friends are exactly that.
I spent far too long thinking of an extension to this line of thinking, which I entirely agree with I should add. I was trying to work out how to expound how we are witness to the car-crash of capitalism, the free market and democracy, all of which have gone rather wrong in the past 10 years and have now careered into each other, such that Big Biz and inordinately wealthy individuals seem to be able to own/rig the system, laws of competition don't seem to balance the market any more and democracy is meaningless, esp' when you have such grotesque options (I'm looking at you USA, but the UK's Labour party or the upper echelons of the EU are equally valid for differing reasons). A lucid and reasoned paragraph is in here somewhere but damned if I can find it - I keep on sounding like a crazed illuminati/NWO loon, so will just leave this here as a sort of signpost as to what I am thinking whilst I go drink more coffee and try and shake the w/e off.
Short answer - I agree and upvote.
Why would a member of HMG pass a tax law that would penalize their future employers? In reality to conversation goes like this:
MP: We're going to pass laws that make FB pay a fair amount of tax.
FB: We support you in this, meanwhile how about we contribute 10k to your reelection campaign?
MP: Thank you ... now where did I put that motion? Let's fine child molesters instead.
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"Welcome to the new generation of tax accounting where "investment" = "loss" for tax purposes."
Thats not even close to being new. If you invest in something you pay money out, its an expense to your business and therefore reduces your profit, as tax is paid on profits it also reduces your tax liability.
If the investment pays off you make more profit in the future and pay tax on that, if it doesn't you have lost your investment your profit doesn't change.
Not exactly the same, but a real world example:
Im a contractor, I work out my corporation tax monthly, So (FOR EXAMPLE) say I get £10k a month coming into the business and have 2k of expenses (For example a weeks training), I pay out £1600 in corporation tax that month.
Now imagine the next month something goes wrong and my invoices dont get paid, I go on another course so have same £2k in expenses... so my CT for that month works out at £-400, thats not my company gaining £400.
If that pattern goes on for more than four months HMRC end up owing me money.... Ill never see that money... but my spreadsheet will show it none the less...
@d3vy I really hope you pay an accountant to look after your accounts. It's not £-400, it's nothing, X% of zero profit is still zero. If you lost £400 a month for a year you would pay zero tax and register a £4800 loss. Next year when you start earning more due to all that training you can offset the tax to be paid on the profit you gained from that investment. Think of it as spreading the cost over tax years.
Wikkity, yes I am well aware, I was trying to get the point t across in a simplistic manner to someone who didn't seem to understand that businesses can run at a loss and offset tax.
I may have tried to over simplify it and lost the point I was trying to make.
If my CT bill today is 10k and this month I make a loss my CT bill goes down, because my profit for the year has been decreased.
The entire dot com parts 1 & 2 were built on this - think amazon or any one of the now stratospherically ginormous software/app biz of the past decade or so. Not one made any mention of how to make money - all were ideas of how to use the new technology for technology's sake (from a purist's angle hats off to them I suppose), and the money men kept on throwing moolah at the lucky few that had caught their eye, deperate to not miss the boat. Monetising the resultant audience was not even an agenda item. That is why people who had some sort of business logic couldn't crack the dot com land rush; they couldn't demonstrate to themselves (let alone any potential investor) how to make it pay (yep, i am one of those; bitter at seeing the coming revolution but unable to make a bean). Only those who hadn't a clue about business and so didnt even try (just look at the shiny) got through, which is why we now have so many muppet squillionaires throwing their money about like drunk teenagers.
"The grew the business... by making a loss. In what reality does that even make the slightest bit of sense?"
Actually it makes lots of sense, always did. A business usually falls in one of three categories 1. spending less than it earns (in which case it is in surplus, which should be invested) 2. spending about the same as it earns (point of equilibrium, difficult to maintain esp. when growing) 3. spending more than it earns (in which case there is deficit and money needs to be borrowed). There are very few large businesses in category 2., most are either borrowing (i.e. 3.) or investing (i.e. 1.) . Needless to say, the roles usually change (borrowing this quarter, investing another). They can be also investing in themselves but that rarely puts them in category 2. because the money flows usually happen at very different points in time (e.g. spend money now to design a new product and earn from its sales next year), and that puts them in category 3.
In this case we are obviously talking category 3. which means FB must be borrowing money from somewhere. Back to where I started, even though many people abhor borrowing, it is actually often cheaper than the alternative. Example: if you were to buy a new mobile phone (but already have some contract) your choice would be to 1. sign to a new mobile network contract with subsidised phone or 2. buy an unlocked phone yourself using your credit card. Assuming your credit card has average interest rate and that you are able to pay the phone off much faster than the contract length (from option 1.), you will be better off using option 2. (that is, borrowing money from your bank) rather than signing into mobile network plan. This is easy to check, the key phrase is "mobile network plan with subsidised phone". Of course, if you still abhor borrowing (and from a bank!) you are perfectly free to sign into a contract, it is your money to spend as you will. You will be still under an obligation to pay money back, except that your contract is not with a bank, but with mobile network, and I understand some people prefer that or, more often, do not think about it at all.
Many businesses do not have such freedom, as they have a duty towards their investors to avoid spending money unnecessarily. Assuming that the company directors know what they are doing, and that they envision future profits from current investment in excess of the borrowing costs, then borrowing money is the right way to grow a business. Even more: if they are not envisioning future profits in excess of the borrowing costs, they are definitely not going to grow a business (because they would be better off nursing surplus, at the extreme even selling off, and investing it in another business, i.e. investing outside). This is of course dictated by the borrowing cost - but as long as the market thinks the company is credible, these will be relatively low. Obviously, that borrowing cost hits the accounts in the short term, hence creating loss. Which means that yes, you will be growing a business by making a loss.
@TRT
Even though they are both numbers and accountants are supposed to be good at numbers aren't they ?.
I wonder how many accountants can count in binary, octal, hexadecimal, let along do any maths in it.
I bet that the only other number base they, like everyone else uses and doesn't realise it is sexagesimal - Base 60 (which is used in clocks for obvious reasons).
This is ironic, given that they spend all their time worrying about "the end of time" - or at least the next the week, month, quarter, year, tax year, accounting period, etc.
You see your mistake is thinking accountants aren't good with numbers because they aren't doing higher maths functions, thats not what you hire them for, you hire them to be good with numbers in what they do, and know tax laws etc inside out.
Speaking as an engineer, the first time an accountant took me through double entry bookeeping I was totally lost.
It would make sense if that "loss" was actually due to *true* investments to grow FB in UK, and the money didn't come from a parent company with a lot of cash...
Instead that "loss" is mostly artificially created - and not a productive investment - taking advantages of laws loopholes across different jurisdictions - to avoid taxes.
"...Jo Maugham QC, a tax specialist, as saying: "Facebook's accounts are rather opaque. But we can be confident that the structure of its business continues to be driven by the desire to make the smallest possible financial contribution to the public infrastructure it uses."
Sorry, I thought I had something insightful to add here but I guess not.
Maybe I'm just pssed off at recently having to do extra sections of tax submission* just so HMRC can take more money off me because I was marginally over a threshold**. Possibly almost enough to cover the postage of telling me how much it is (barely, I checked).
Tax law written by tax lawyers from big companies benefits tax lawyers in big companies, who knew? Plebs - who are by definition the taxpayer - will always pick up the tab.
.
* if ever there was an appropriate word, this is it...
** not one involving lots of zeroes, this was almost low enough to qualify as an 'exists or not' question
We all know that, internationally, the tax system is broken.
"Back in the day", most companies operated in a single country. This meant that the government could set the rules, and the company had to follow them. Sure, they would play the system as best they could, but the rules were all under the government's control.
This no longer applies to large multinationals. No single government can set rules to ensure a company pays their "fair share" of tax.
What is needed, IMHO, is an international tax authority whose job is to ensure that, for tax purposes, profits are assigned to the country where they were generated. This is not a simple matter, as it's not necessarily where a "sale" is made, but it should be possible where the "value" was added, and ensure tax is paid to the relevant authority.
"or just tax turnover, not profit."
Taxing turnover is not a fair way to tax. It seems to tick the boxes, but it has been shown time and again that it's not the right way to do it.
Let's take a silly example.
Company A manufactures widgets. It costs £1 in materials and £5 in labour to make each one. They sell 1m of them for £10 each (wholesale), meaning a turnover of £10m and a gross profit of £4m. They then spend £3m of their GP on, for example, wages and other costs to run the business, leaving a net profit of £1m to pay tax on.
Company B buys 500k of those widgets and shifts them through it's online distribution chain at £20 each. Their turnover is £10m, and gross profit £5m. They spend about £1m on running their business, leaving £4m net profit to pay tax on.
Both have a turnover of £10m, but they have vastly different profits. Is it fair that those 2 companies pay the same amount of tax?
A tax on turnover is known as a sales tax. We all know that a sales tax is not a tax on the company, but a tax on their customers. VAT, for instance, is a tax on consumers. It does not tax the amount of money that a company makes, but charges their customer for the privilege of buying the product.
We should be taxing profit. However, we need to make sure that the profits reported in each country actually match the real product, and are not distorted by artificial means to reduce overall tax liabilities.
We all know that a sales tax is not a tax on the company, but a tax on their customers. VAT, for instance, is a tax on consumers. It does not tax the amount of money that a company makes, but charges their customer for the privilege of buying the product.
And ultimately who pays the tax on "profits" ?
Hint - its the same mugs that pay pay VAT
Can't disagree with your last para However, we need to make sure that the profits reported in each country actually match the real product, and are not distorted by artificial means to reduce overall tax liabilities.
And ultimately who pays the tax on "profits" ?
Hint - its the same mugs that pay pay VAT
No, that isn't always the case. It is only the case if the company can raise prices as it likes. In a competitive environment, the tax (or at least part of it) will be being paid by the shareholders because a competitor making less profit will pay less tax and will be able to offer a lower price.
Up to a certain point - it's more difficult for companies to justify higher prices or just say "our price before VAT is this, what you pay beyond that is to the government, not us". And you can always show prices before VAT on ads...
Very different perceptions by the customer - moreover there are customers who can deduct VAT.
That's why companies don't complain if governments plan to move taxes from profits to sales.
Works on a personal level... why not the corporate?
That's what the personal allowance is (supposed) to be for*.
The personal allowance should be set at an amount such that you don't get taxed on what you need to live and work. This is vaguely similar for all individuals, so to simplify things, the allowance is given. It would not work for a business due to the wide variety of business types and models etc.
Personally, I would not object to doing away with this and allowing "claiming of expenses": Allow an individual to claim for basic living costs and working costs, so basic housing, basic food, travel to and from work etc, and offset this against their gross income for tax.
>@Gio Ciampa
>"Works on a personal level... why not the corporate?"
>It doesn't though does it? As a quick example - do you pay into a company pension?*
>You are no longer being taxed on your "turnover"
Actually I think that is the only example, or to re-classify, the one exception. Any others? ISAs I suppose, though that's just a delaying tactic really.
Are you asking for a list of ways that normal staff can avoid paying tax?
Ive done that before at great length on another article.
But in summary, off the top of my head:
Pensions
Student loan payments
Cycle to work schemes
Childcare vouchers
Bought holiday days
Employee loans
And a plethora of "employee perks" such as medical cover, dental cover, life insurance and gym memberships.
That's not the whole list either.
@GEZZA
"or just tax turnover, not profit."
Holy christ on a bike, did you put any thought into that or not? - I guess not.
Ok, Assume no tax loopholes... Omnicorp turns over £14bn their wage bill etc comes to 9bn so they make 5bn profit.
Currently they would pay £1bn corporation tax
Using turnover they pay 2.8bn
Great, you've solved the tax problem, but wait.
Mr Smith runs the corner shop, His turnover is £100k but his stock and wage bill is 90k so profit is £10k
Currently his tax liability is £2000 leaving him with £8k to take as a dividend/Reinvest in the shop.
Using turnover he is owe £20,000 he closes his shop and sells his wifes kidneys to pay the tax bill.
correct - didn't put much thought into it other than to see if anyone had thought it through further than the response you gave, cogent as it would seem to be.
Taxing profit turns up the intractable problem of how to stop multi-nationals exporting their profit through clever little schemes, as previously advertised. Have yet to hear any way to block that hole easily.
So why not kick the alternative on a bit further - doesn't hurt to think the stupid to see if there is something the other side.
In your example, Omnicorp has now coughed up £1.8billion more than before. Mirror that across the enterprise world and HMRC should be raking in huge extra dosh. Reducing the actual tax percentage (in your example you work off 20%) to counter-act that, plus maybe a bit of sliding scale action (like personal tax bands) and you should able to shuffle the payables by Omnicorp to a more manageable/acceptable level and bring Mr Smith's liabilty down to, who knows, even zero (it was only £2K under the old system - Omnicorp's extra dollop is many thousands of Mr Smiths).
not so stupid, maybe.
In my example Omnicorp also close down any UK presence they have and set up in a country with lower Corp Tax... Like Ireland.
Whiiiiiich brings us right back to the issue we have now, except now we are also gutting small businesses in the interests of keeping things fair.
Wow, lot's of communists here today! =) Seriously, if the state wants more money, create the laws that lead to that result. Depending on how draconian the laws then are, sit back and watch as companies move somewhere else.
In case of FB, if you want to drive them away, just create a law that charges silicon valley based business a fee for operating in the UK per year, based on their global revenue. Enjoy!
No, the politicians are pure cowards. They want to eat their cake (tax all companies as hard as they can) and have it too (not having them move somewhere else).
Since they have the power, they should not complain. They should execute. FB are doing well, and they are not breaking the law, so stop complaining.
.... if paved of greedy company plates, and politicians interested laws. Or, sometimes, those leading to something like the French revolution.
The best way to destroy capitalism is to ensure the rich one doesn't pay taxes, or are allowed to escape most of them, while hammering everybody else. Then a point is reached when those who pay lot of taxes start to listen to some dangerous mermaids.
But those who then lose their heads, should have used them before... and understand where greed ma lead.
PS: I don't advocate heavier taxation on rich people - just the need they pay like everybody else without being able to find loopholes easily. After all, that's the foundation of any democracy.
"The best way to destroy capitalism is to ensure the rich one doesn't pay taxes, "
It all starts to make sense now, Donald Trump is actually a communist agent sent from the future to trigger a proletariat uprising against capitalism. Makes more sense than he is actually trying to get elected based on what he says and how he behaves.
Aaah you always hear that Ayn Rand bit of if we tax them they will bugger off.
Lets look at that, if say a you have a company that makes massive sales selling stuff over the net and you are making 4 billion in profit a year but only paying taxes of 3 million.
Are you seriously telling me that if this company now ended up paying 100 million in taxes on the same profit they would spit their dummy out and go home?
Fine let them.
I'm sure there are a few people in the world who would be happy to have a business that only makes them just under 4 billion instead. I am actually pretty sure most people could put up with that when it comes to making a living.
The ship reminds me of the Crimson Permanent Assurance...
It's fun to charter an accountant
And sail the wide accountancy,
To find, explore the funds offshore
And skirt the shoals of bankruptcy!
It can be manly in insurance.
We'll up your premium semi-annually.
It's all tax deductible.
We're fairly incorruptible,
We're sailing on the wide accountancy!
The only way to remove tax avoidance/efficiency is to radically simplify the system. All people pay x% tax on all *earnings*, and all companies pay y% tax on all *sales*. It would need a bit of work for expenses, but that should be fairly straightforward for both individuals and companies. Get it down from 600+ pages or whatever it is in the UK to under 20 and it would be a lot harder to game the system.
At the same time, make accountants equally liable for any dodgy schemes that people use. So if I was found to be doing something underhand and facing a large fine, the accountant would face exactly the same fine.
Back when I was a callow apprentice in the 70's/80's the company I worked for would routinely move departments around the building with refurbishment and almost continuous rebuilding works because they could charge that against profits. The impact on the teams who continually had to pack/unpack all their records and spend weeks getting back into normal working mode was just another cost of working.
The only real difference now is scale where some country offers incentives to build data centres or call centres. They then write the costs down over a few years and then sell them off to build a new one in some other country which makes a good enough tax-break offer.
What public infrastructure would that be?
Is that a genuine question??? Functioning economy, civil legal system, regulated financial services, criminal law & police, available employees, education, healthcare, transport, defence, international trade agreements, rubbish collection, ...
What you need is a "Money Leaving the country" tax.
If the profits stay in the UK then they can be taxed at the existing corporation tax rate.
Any money that leaves the country that goes to another company in the corporate structure (however that might be - "brand licencing", "coffee beans purchase" or however the company chooses to dress it is taxed at the same rate. Obviously make it Illegal to avoid this tax by moving the money through a 3rd party or something.
If they try to avoid this by not having a taxable UK company - then just set a rule that they are forced to above a certain turnover or percentage of their global sales - even if that's just a virtual sales and marketing office - or pay a hefty export tax, that happens to be the same as the same as the corporation tax (on top of VAT of course)
Not saying its quite as simple as that, or there's no flaws that need working out - but it'd be a good start!
Sorry to be a downer, but its almost impossible to have a system like you describe.
A simple example would be brand licensing - Starbucks US sells its brand rights to Starbucks UK so that they can run stores in the UK with the Starbucks brand. How do you determine what's a reasonable valuation of an intangible asset? you might think its worth X, but they almost certainly see it worth Y. How do you argue that point with them?
For another example, lets take your example of coffee beans, if they charge themselves £5 per kg of coffee beans or £50, how are you going to say that they are overcharging? There is nothing to say that people absolutely must buy the cheapest item available on the shelf, otherwise we would all be driving Fiat Pandas. So they would simply say they are buying the Rolls Royce of Beans and hence the higher price. How do you prove that they are really just profit shifting? How do you Force them to buy the cheaper beans?
Unfortunately, whilst a system like that sounds great, its almost impossible to work in practice...
You can hinder such transactions when the companies are part of the same ownership - i.e. state that if Starbucks UK is owned by Starbuck US it automatically has rights to the brand and the parent company can't charge the subsidiary for it. Also regulate the transfer of goods inside the same companies - to avoid overcharges to avoid taxes - i.e. apply VAT (without deductions) on such transfers, so if Starbuck pays coffee £50 per pound it will pay much more VAT than at £5....
And if they try to build shell companies, heavily fine them for that.
Just get rid of Corporation Tax, all businesses will try and avoid paying it, so get rid of it,,
Then ensure that VAT is due on all sales in the UK, that way the government still gets their cut even if no profit is made....
No need for complex tax rules, just VAT due in the country the buyer is from.....
How many times does El Reg have to be corrected?
GLOBAL PROFITS have nothing to do with the revenue and profit of local operations! However, if Facebook were to claim in their US financial statements that the UK operations have contributed X in profits, and they declare Y in profits to the UK authorities, then by all means rake them over the coals if X > Y, but seriously... harping on about GLOBAL profits and GLOBAL revenues that have *NOTHING* to do with UK operations is just being deliberately misleading.
Go and do a basic accounting course! Yeah yeah, downvote me already. You know you want to anyway.
I'm not even sure that this is anything bad. I've yet to really work out how Facebook make a lot of income, let alone profit compared to the prodigious amount of storage and computing infrastructure they require.
I'd say that it's a huge amount of up front investment with the potential of getting returns that may repay all of this back. Eventually. In this case building up losses to offset against tax the following year (or years, depending on how you account for it) is perfectly correct and above board.
I'd never thought that I'd be defending Facebook, but on this point given their infrastructure costs compared to the likely trivial advertising income (at one point AIUI they got most of their income from idiots paying for in-game items in click-fest games), I'd not say that it's unreasonable. Unless of course they're making a pile of cash in this country and then "purchasing" services from another arm of the same group which is just a way of shifting profit from one tax regime to another.
Speaking as a chartered tax advisor, the article is slightly misleading.
From the accounts, it looks as though Facebook has £4m to pay this year. It hasn't earnt a credit at all.
What it has done is issue a shedload of RSUs, which will in theory give it a big deduction (£70m or so) when they vest, assuming the stock price stays where it is. That is, they'll get a corporation tax credit, if and when their employees get taxed on the RSUs.
£70m-worth of RSUs would give Facebook an NI liability of around £10m, plus the income tax and employees' NI would be another £30m or so.
Basically, Facebook is not paying tax in the UK because it's giving away all its profit (and more) to its employees. The Treasury does very nicely out of this, and Facebook still ends up paying a lot of tax (it's just a different tax...).
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