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Tax crackdown on banks and multinationals 'to raise £5bn'

133 points by dazbradbury 12y ago

atwebb 12y ago
If I glossed over that correctly, it seems more like a "Bank tax rule tightening", they estimate 5B over 5 years, 4 of which come from changing/tightening banking regulations and 1B (over 5 years) of which comes from mutlinationals operating in the UK. Not sure if that's ~200M a year or if there's some front/back loading and I really have no clue as to UK revenue/profits for all multinationals combined but (fuzzy math) is 200M a year for all of them a significant change? Does this only target companies of a certain size/category?
- talmand 12y ago
  I don't know about overseas, but here in the states every time politicians give out an estimate on how much revenue a new tax will generate they tend to be grossly incorrect at the end of the year. The reason is that if you tax an activity then people do things to avoid paying the tax for that activity; stop, move, or avoid. Sad thing is, the politicians make the revenue announcement so they can go ahead and spend the money as if they've already collected it.
JonnieCache 12y ago
Missing end of the sentence: "...which they then artificially shift abroad." Details aren't very clear. It's called the Diverted Profits Tax, there's a longer article here: http://www.bbc.co.uk/news/business-30306266 http://www.bbc.co.uk/news/business-30306266
timje1 12y ago
As far as I can tell, they shift profits overseas by shifting extra, semi-fictional 'costs' to the UK subsidiary - for example, if the UK subsidiary of Starbucks makes $100m profit, but has to pay the Canary Isles subsidiary $100m in licensing costs, suddenly the UK subsidiary owes no tax. Given this structure, how does the HMRC plan on distinguishing between legitimate costs and semi-fictional ones? I imagine as soon as the law is changed, the companies will alter their books so that they shift all their 'legitimate costs' to the UK subsidiary. I suspect that this shift will end up benefitting tax accountants and lawyers.
- seabee 12y ago
  Given the tax accountants and lawyers help draft these laws, there is every reason to be suspicious of that!
- Turing_Machine 12y ago
  Some of the arrangements can get pretty complex. http://en.wikipedia.org/wiki/Double_Irish_arrangement http://en.wikipedia.org/wiki/Double_Irish_arrangement Basically, sending the money from Germany (or wherever) -> Ireland -> Netherlands -> Ireland -> Cayman Islands results in no taxes being paid (or legally due).
  - notjackma 12y ago
    Exactly. In the case of Apple: The Irish company licenses intellectual property from an Apple registered company in the Cayman Islands, and of course the Royalties are so high that the Irish company makes no profit. So all this money accumulates offshore and can't come back to the US unless some taxes are paid, which is why Tim Cook meets with Congress to try and lobby for a tax repatriation holiday. Which is also why Tim Cook is raising money in the debt markets to pay shareholders dividends - it's cheaper to pay a tiny bit of interest than pay tax. Absurd that such a rich company is doing this. Ironically, the money is already back in US - the Caymans entity invests the money in the US stock market via Braeburn Capital, a hedge fund based in Nevada and owned by Apple Inc!
    - crdoconnor 12y ago
      >So all this money accumulates offshore and can't come back to the US unless some taxes are paid, which is why Tim Cook meets with Congress to try and lobby for a tax repatriation holiday. Ironically a lot of this money would probably be repatriated tomorrow (with taxes fully paid) if Congress ruled out a tax holiday and committed itself to gradually raising rates. It's just the tantalizing hope of a tax holiday that keeps it abroad.
      - sp332 12y ago
tehwalrus 12y ago
Devil will be in the detail, and he's not giving any details yet. Without significant simplification of the tax system, no such tax bill will be accountant-proof, or treaty-proof.
- awjr 12y ago
  I'm going to assume that any significant off-shore charges from subsidiaries will be considered profit and the company will need to prove otherwise. Should cause a few cases to go through the law courts.
gadders 12y ago
I wonder if this will affect Ikea, which pretends to be a charity [1], as well as the usual Starbucks/Amazon/Google suspects. [1] http://www.economist.com/node/6919139 http://www.economist.com/node/6919139
- icebraining 12y ago
  It's not a charity, it's a non-profit. The comparison with the Gates Foundation makes no sense, there's no expectation that it should have a charitable purpose, it's simply a legal entity that has other goals instead of having a fiduciary duty to shareholders. In particular, it only receives tax benefits if it's classified an "Institution for General Benefit" (ANBI) by the Dutch IRS, which IKEA isn't.
  - gadders 12y ago
    From the article: "What emerges is an outfit that ingeniously exploits the quirks of different jurisdictions to create a charity, dedicated to a somewhat banal cause, that is not only the world's richest foundation, but is at the moment also one of its least generous. The overall set-up of IKEA minimises tax and disclosure, handsomely rewards the founding Kamprad family and makes IKEA immune to a takeover."
    - icebraining 12y ago
      I know what the article says. I'm saying it's wrong. It's trying to apply the US concept of "foundation" to the Dutch concept, which is invalid.
Shivetya 12y ago
Funny how the say banks and multinationals will pay, I really think they should in turn put on every receipt how much the end consumer is actually paying in tax, all under the idea of disclosure. Food places like starbucks and McDonalds they could put it next to the mandated calorie count. This sandwich will cost 400 calories and 40 cents in built in taxes and twenty cents in sales taxes. People really need to understand just how much they are truly taxed, far too many see only the sales tax and not many more understand payroll. Indirect taxes is the big skeleton in the closet.
- crdoconnor 12y ago
  The tax incidence of profit taxes falls pretty much entirely on the shareholders. The consumer is unaffected. Companies that have their profits taxed at higher rates would sure LOVE to raise their prices to compensate for lost profits, but a little thing called competition prevents them from doing so. >People really need to understand just how much they are truly taxed Indeed. The level of tax literacy and misunderstanding among the general population appalls me sometimes. I can think of at least one example right now...
  - mike_hearn 12y ago
    > The tax incidence of profit taxes falls pretty much entirely on the shareholders. The consumer is unaffected. Well, only if you believe profits aren't used for anything except dividends. The "consumer" can be affected when they don't get new products, or existing products are worse, or when they fail to be hired as an employee, etc.
    - crdoconnor 12y ago
      Theoretically if the profit tax approaches 100% then nobody will form companies because what's the point? Rest assured, though, the levels we are discussing here will have zero effect on Starbucks' ability or desire to bring us new pumpkin vanilla spice lattes every winter season.
  - benmmurphy 12y ago
Mvandenbergh 12y ago
I'll be interested to see how this is implemented in practice. The way this kind of tax avoidance works is for subsidiaries in low-tax jurisdictions to charge the ones incorporated in higher tax jurisdictions high fees for things like access to IP. This "artificially" inflates the profits for the low-tax company and depresses the profits for the high-tax company. Artificially is in quotes because it's hard to establish a legal rule to determine what is and isn't fair pricing for IP and services which is why I'm interested in seeing how this will be enforced. Edit: the reason that so many of these were based in Ireland was because until 2015 Ireland won't have rules on this sort of intra-group "transfer pricing" transaction. You can't do this between two US or a UK and a US company because those countries have rules that prevent it.
- grey-area 12y ago
  I suppose one way to clamp down on any such activities would be to simply class all payments to subsidiaries in low-tax jurisdictions as qualifying for this extra tax. That would avoid any arguments over what exactly is a fair price for certain services or whether certain services/fees qualify.
  - Mvandenbergh 12y ago
    You couldn't do that for payments between companies within the EU because of existing treaty obligations. Not to mention, how do you determine what counts as low tax? The UK a has substantially lower headline corporate tax rate than the US. That doesn't reflect the effective rate though.
  - notahacker 12y ago
    And intra-group licensing costs and royalties should also be disregarded as costs for tax purposes, since there's no real or opportunity cost to allowing one part of the group to use another's IP except for the cost savings that can be generated by shifting the tax burden.
    - sokoloff 12y ago
      Imagine a scenario where McDonalds corp has both company owned stores and franchisee-owned stores and that both are charged the same, substantial amount for the use of McDs trademarks. Should the McDs owned store be wildly more profitable in the eyes of the tax authorities? Suppose that the franchisee and the company store both use the McDs supply chain to buy ingredients. Are those costs "real enough to count"? If not, why not? If so, why aren't the trademarks "real enough"? If the trademarks don't count intra-group, what if the trademarks are only licensed (for $1) subject to the use of the company supply chain for ingredients? This serves a legitimate purpose of protecting the trademark and giving the customers a uniform experience at all stores, or it serves as an underhanded tax dodge, depending on which reporter is writing the article... I'm merely suggesting that trying to author precise legislation around this area is inherently a slippery slope and "intra group IP licenses are barred" isn't going to be perfectly effective. Lawmakers have a legitimately hard problem to solve and their "attackers" have a lot at stake to find/exploit intended or unintended loopholes.
drsintoma 12y ago
The term "google tax" made me think is was related to google having to pay ISPs for using their tubes. Glad to see that is about actual tax evasion.
- rahimnathwani 12y ago
  Evasion !== Avoidance At least in the UK, these two words have entirely different meanings when applied to tax. Tax evasion is not paying tax which is due. Tax avoidance is arranging your activities to reduce or minimise the taxes which are due.
  - ProAm 12y ago
    The activities that giant multinational corps take part in it is effectively the same thing.
    - bmelton 12y ago
      Only if we pretend that individuals don't do the same thing. When I check the box to count my daughter as a dependent, I am "avoiding" taxes. When a multi-national corporation inverts their company to Canada, they are "avoiding" taxes. So long as all of the above are within the rules, neither act is immoral.
      - lmm 12y ago
        Or both are. Here in the UK I've never made any attempt to optimize my taxes; I called HMRC once (when I saw a big increase in how much tax I was paying over the previous month's payslip) and they told me everything was fine, and that's the total extent of my interaction with them. (I even avoid ticking the gift aid box on charitable donations, as I think that's immoral). I agree that there is no legal obligation not to minmax your taxes, but I think there is a moral one.
        NLips 12y ago
        Gift aid is a specific scheme created by the government to increase charitable giving. At the 20% income tax bracket, it makes no difference to you but helps the charity, and at the 40+% brackets it makes a difference to the charity and provides you with a fraction back. You still end up with less money than had you not given to charity, and it's MEANT to work this way. It's a very different kettle of fish to exploiting tax loop holes.
coldcode 12y ago
Good luck with that. There is no way short of global world government to force a company with subsidiaries and business all over the world to pay taxes everywhere.
- awjr 12y ago
  Don't think it's about everywhere. What they are trying to stop is the profits made in the UK being offset against artificial debts from another division of the same company in a different more tax efficient country.
  - mike_hearn 12y ago
    The problem is profits aren't made in the UK at all. For big tech companies usually they have a subsidiary in a given country, and that subsidiary charges the parent company for access to its work/innovations/whatever. The subsidiary does not itself receive payment for the global companies operations in that country, despite how unintuitive it is. This is why the UK arms of these companies don't make any profit - they charge the parent companies more or less at cost. Meanwhile people who want to buy their services sign a deal with the Irish subsidiary. But legally these are different companies. Additionally it's impossible to say how much profit is being made in a particular country. You can count income quite easily, but then what percentage of the cost of developing Facebook can be accounted to servicing the UK market? It wouldn't make sense to allocate ALL the cost of creating Facebook to the US market and treat every other country as pure profit, as obviously there are costs involved with being international. I'm not convinces Osborne has any real clue about the morass he's wading in to here. It gets worse when you think about the possible future impact. Imagine Google and Facebook didn't have any UK presence at the moment but were looking to hire people there, because of an abundance of skilled people in, say, London. But entering the UK suddenly means a 25% tax on their UK sourced income. Why would they ever hire the first employee? If they stay out entirely, they aren't in UK jurisdiction so there'd be no reason for them to pay any tax there.
    - awjr 12y ago
      Amazon is a classic example of this, an apparently UK based selling business that in fact sells via Luxemburg with Amazon UK only being a fulfillment/delivery service.
motters 12y ago
I think this is good news. Companies such as Google and others have been avoiding paying taxes for too long. They do this in ways which up until now were fraudulent but technically legal, by creating fictional companies or by laundering money via havens.
- ams6110 12y ago
  Technically legal is by definition "not fraudulent." It is their duty to their shareholders to pay the minimum tax they legally must pay.
B5geek 12y ago
"Profit" is very easy to hide. Income, not so much. The difference is 'net' vs 'gross'. The horrid nature of current tax law is geared towards lawyers and accountants being creative. The system is geared to reward con-men and punish the honest. A flat-rate tax system based on income might be more effective but the real danger is the tax-breaks that companies get. I see this all the time with Ford/Chrysler/GM. "We will build a factory in your city/state/county if you give us X-billion in tax breaks." My thoughts: You want to sell your product don't you? In Canada we had a law called "The AutoPact" [1] which basically said that for every 3 cars that you sell in Canada, 1 must be built here. Corporate welfare will always be a greater hindrance to tax-coffers then personal welfare will ever be. Why are we paying companies so they have the privilege of taking our money? [1]http://en.wikipedia.org/wiki/Canada%E2%80%93United_States_Automotive_Products_Agreement http://en.wikipedia.org/wiki/Canada%E2%80%93United_States_Au...
- pasbesoin 12y ago
  When, in naval-gazing films and TV, an entertainer character insists on x % of "gross" revenue, this is why. There've been many articles and posts cited on HN that go into the tortured, and very profitable, machinations of entertainment industry financing and accounting. Some argue towards making such finance, e.g. taxes, simple to the point where it can't be gamed. The tradeoff is that finance is used as much if not more so than overt legislation, to steer policy, investment, and ultimately -- imperfect as they are -- outcomes. I'm not saying simplification is wrong. But keeping your system intact while you do it, is... well, not as simple as it might seem. But there is a lot of potential benefit. How much further would clean(er) energy be, if we weren't propping up carbon fuels to the tune of billions in subsidies every year (including a substantial part of e.g. the U.S. military budget)? Would the Mid-East be quite such a mess, if no one was continually pouring money into its weapons systems and dictatorships? Anyhoo, I typed way more than I intended. When an outfit is doing fantastically well, to all appearances, yet the profit is missing, then start looking at / going after the gross. They have to pay their way, just like everyone else. Perhaps all the more so, the more they insist upon being a "corporate person" with "personal" rights (e.g. speech, et al.). ---- P.S. As an actual person, with a few policy-minded exemptions aside, I am taxed on my gross income. Not my net. (E.g. I don't get to deduct my groceries, nor my auto insurance, nor...) (Although, state sales tax in the U.S. does vary by state and is often, when lowered, meant to lessen the regressive nature of said tax for low income earners with respect to essential goods -- you gotta eat.) Home owners get to deduct mortgage interest, while renters get no such break even though a significant chunk of their rent may effectively be paying the interest on the landlord's mortgage for the property. Pushing home ownership in the U.S. as a policy that apparently veered into the extreme, providing lots of marginal loans as raw inputs into the financial machinations that propelled the 2008 Great Recession. Anyway... I'm taxed against my gross income. There's no magic rule that says businesses can only be taxed against their net. It's all policy -- not natural law. And when they game the system beyond all measure, they should expect that, sooner or later, policy will be changed. The problem is in good part that, if they can make it later enough, they become another "too big". They've captured their regulation.
vegancap 12y ago
I'd rather see profits in the workers pockets than the UK government's coffers. If we keep ramping up taxes on large corporations, they're just going to move abroad. Take Starbucks for example, they're not even turning over a profit in the UK... yet they created thousands and thousands of jobs. We'll keep ramping up taxes, they'll close down stores, move abroad and then wonder why youth unemployment keeps rising.
- wmeredith 12y ago
  I find it rather amusing that you think the profits will end up in the worker's pockets: http://www.pewresearch.org/fact-tank/2014/11/08/with-41-of-global-wealth-in-the-hands-of-less-than-1-elites-and-citizens-agree-inequality-is-a-top-priority/ http://www.pewresearch.org/fact-tank/2014/11/08/with-41-of-g...
- singlow 12y ago
  There is no reason for a company like Starbucks to move its retail locations to avoid taxes. They might move other facilities such as corporate offices or manufacturing, but the stores themselves are either profitable or not and it can only serve the local area anyway. They can't sell cappuccinos to London commuters from a store in the Netherlands. They only leave if they can't make money at all. Although taxes may dissuade them from expanding, if the capital can have better return elsewhere.
- GotAnyMegadeth 12y ago
  Genuine question: Is there any evidence that Starbucks 'created' more jobs than it 'destroyed' through competition? I.e. It's not as if there weren't thousands of people working for coffee/tea shops before Starbucks came along.
  - vegancap 12y ago
    I'd argue they brought coffee culture more to the British high-street. Coffee shops were few and far between and the demand was fairly low say 10 years ago. This also coincides with a lot of pub closures due to certain government regulations and increased taxes on alcohol.
DodgyEggplant 12y ago
Much ado about tax collecting. Less ado about how, and on what, big governments spend the tax money.
- vixen99 12y ago
  Now you're on to something really important! I am not aware (granted - I guess because I happen not to have seen it) of any really wide ranging high level discussion on this massive subject nor do I expect there to be. Sheep probably debate in their sheepish style, pecking orders but probably not the sheering.
ermintrude 12y ago
At least it hasn't taken the Tories nearly a whole term to begin to address this issue... Got to say I agree with this http://www.thetimes.co.uk/tto/news/politics/article4285739.ece http://www.thetimes.co.uk/tto/news/politics/article4285739.e... (paywall). Summary: Hodge wants to make it a criminal offence to sell or promote illegal tax avoidance schemes in the first place. So if HMRC challenge a scheme and it's found illegal, the lawyers/accountants who developed it can be criminally prosecuted as well as those who used it.
- driverdan 12y ago
  > Hodge wants to make it a criminal offence to sell or promote illegal tax avoidance schemes Isn't promoting something illegal already illegal by definition?
  - binarymax 12y ago
    This sounds like something that isn't defined as illegal yet but might be in the grey area - and if HMRC decides it's illegal later then you are punished ex post facto.
  - ermintrude 12y ago
    Apparently not: "HMRC can prosecute tax advisers if they try to hide schemes, but has no sanction against those that create and sell artificial trading arrangements designed solely to dodge taxes." That's what she wants to change.
    - pcrh 12y ago
      That's hardly likely to make any difference. The accountants and lawyers will simply move to wherever their activity is legal.
  - vixen99 12y ago
    Definitions! llegal tax avoidance = tax evasion. You might as well talk about legal tax evasion.
- 12y ago
paulhauggis 12y ago
Low taxes? I almost fell off my chair. With all of the rules, regulations, not to mention v.a T. A 25% additional because we can tax doesn't seem very low or fair. If my company was having these taxes imposed on me, I would move all of my offices and companies out of the U.K. within the next couple of years. I will be interested to see what happens to the economy after these changed.
- richardwhiuk 12y ago
  You'd have to stop selling in the UK as well - that's the point.
  - perlpimp 12y ago
    SWIFT transactions are pretty easy and establishing a network of professional resellers should not be hard.
    - tormeh 12y ago
      Oh, so you propose a prohibition-style network of underground resellers and whitewashing of money? You know that this way lies the need for a personal army, a white cat and an Italian accent, right?
- tw04 12y ago
  The only reason this even exists is google caving to wall street pressure. I doubt Sergey or Larry have any objections to paying taxes in the countries in which they generate profit.
delingpole 12y ago
In order to make this workable, the government would assume that certain industries make certain profit margins e.g. 8% assumed profit for the sale of goods to 32% assumed profit for the sale of services. [0][1] According to the FT: "the new tax would be a “deemed profits” tax rather than a corporation tax, so as to sidestep issues about double tax treaties. [...] the Treasury would identify profits that escaped tax in the UK because of royalty arrangements or the absence of a taxable presence. [...] It seems to be something completely novel . . . It is a huge stick that will stop this artificial avoidance. The difficulty will be how it is defined in practice.” [2] [0] Similar way to the way the UK flat rate VAT scheme works [1]http://www.internationallawoffice.com/newsletters/Detail.aspx?g=df76beff-e892-4399-a960-04b1de632483 http://www.internationallawoffice.com/newsletters/Detail.asp... [2] http://www.ft.com/cms/s/0/127010ea-7af9-11e4-b630-00144feabdc0.html#ixzz3KqqtmghP http://www.ft.com/cms/s/0/127010ea-7af9-11e4-b630-00144feabd...
nly 12y ago
Here's a list of all the companies registered in the UK with the string 'Google' in them, that aren't listed as 'dissolved' (there are a lot of those), and aren't obviously registered by morons[0][1][2][3][4][5][6][7][8][9] who think they can infringe on the trademark. BR017040 GOOGLE COMMERCE LIMITED UK ESTABLISHMENT FC031970 GOOGLE COMMERCE LIMITED UK ESTABLISHMENT 5903713 GOOGLE PAYMENT LIMITED 3977902 GOOGLE UK LIMITED 9183796 GOOGLE VENTURES UK MANAGEMENT COMPANY, LIMITED I believe the first two are part of their Double Irish tax dodge: http://vimeo.com/68581263 http://vimeo.com/68581263 so those should disappear soon. [0] http://www.endole.co.uk/company/09054162/google-ninjas-limited http://www.endole.co.uk/company/09054162/google-ninjas-limit... [1] http://www.endole.co.uk/company/08533581/google-pizza-ltd http://www.endole.co.uk/company/08533581/google-pizza-ltd [3] http://www.endole.co.uk/company/08770094/google-it-ltd http://www.endole.co.uk/company/08770094/google-it-ltd [4] http://www.endole.co.uk/company/09263100/google-international-web-ltd http://www.endole.co.uk/company/09263100/google-internationa... [5] http://www.endole.co.uk/company/08537202/google-ads-ltd http://www.endole.co.uk/company/08537202/google-ads-ltd [6] http://www.endole.co.uk/company/08497535/google-analytics-limited http://www.endole.co.uk/company/08497535/google-analytics-li... [7] http://www.endole.co.uk/company/08615290/google-logistics-ltd http://www.endole.co.uk/company/08615290/google-logistics-lt... [8] http://www.endole.co.uk/company/09042316/google-property-limited http://www.endole.co.uk/company/09042316/google-property-lim... [9] http://www.endole.co.uk/company/08573677/google-recruitment-limited http://www.endole.co.uk/company/08573677/google-recruitment-...
- hkmurakami 12y ago
  9054162 GOOGLE NINJAS LIMITED 8533581 GOOGLE PIZZA LTD. OK. Had to highlight these two.
  - Aardwolf 12y ago
    Ninjas and Pizzas - the list is missing turtles.
lukasm 12y ago
VAT 0%,5%,20%. 1% revenue tax, companies can deduct only 30-80% VAT. No corporate Tax, no income Tax. Tax land and properties a lot.
touristtam 12y ago
Funny how the same UK government propose to have devolution of corporation tax in Northern Ireland (NI), which is still part of the UK so the NI Government can match the corporate tax of the Republic of Ireland. http://www.bbc.co.uk/news/uk-northern-ireland-30131556 http://www.bbc.co.uk/news/uk-northern-ireland-30131556
gaius 12y ago
Google is investing £1bn in a new headquarters building in London. Seems an awful lot, for a country where they make no profit.

133 points by dazbradbury 12y ago

If I glossed over that correctly, it seems more like a "Bank tax rule tightening", they estimate 5B over 5 years, 4 of which come from changing/tightening banking regulations and 1B (over 5 years) of which comes from mutlinationals operating in the UK. Not sure if that's ~200M a year or if there's some front/back loading and I really have no clue as to UK revenue/profits for all multinationals combined but (fuzzy math) is 200M a year for all of them a significant change? Does this only target companies of a certain size/category?

talmand 12y ago
I don't know about overseas, but here in the states every time politicians give out an estimate on how much revenue a new tax will generate they tend to be grossly incorrect at the end of the year. The reason is that if you tax an activity then people do things to avoid paying the tax for that activity; stop, move, or avoid. Sad thing is, the politicians make the revenue announcement so they can go ahead and spend the money as if they've already collected it.

JonnieCache 12y ago

Missing end of the sentence: "...which they then artificially shift abroad." Details aren't very clear. It's called the Diverted Profits Tax, there's a longer article here: http://www.bbc.co.uk/news/business-30306266 http://www.bbc.co.uk/news/business-30306266

timje1 12y ago

As far as I can tell, they shift profits overseas by shifting extra, semi-fictional 'costs' to the UK subsidiary - for example, if the UK subsidiary of Starbucks makes $100m profit, but has to pay the Canary Isles subsidiary $100m in licensing costs, suddenly the UK subsidiary owes no tax. Given this structure, how does the HMRC plan on distinguishing between legitimate costs and semi-fictional ones? I imagine as soon as the law is changed, the companies will alter their books so that they shift all their 'legitimate costs' to the UK subsidiary. I suspect that this shift will end up benefitting tax accountants and lawyers.

seabee 12y ago
Given the tax accountants and lawyers help draft these laws, there is every reason to be suspicious of that!
Turing_Machine 12y ago
Some of the arrangements can get pretty complex. http://en.wikipedia.org/wiki/Double_Irish_arrangement http://en.wikipedia.org/wiki/Double_Irish_arrangement Basically, sending the money from Germany (or wherever) -> Ireland -> Netherlands -> Ireland -> Cayman Islands results in no taxes being paid (or legally due).
- notjackma 12y ago
  Exactly. In the case of Apple: The Irish company licenses intellectual property from an Apple registered company in the Cayman Islands, and of course the Royalties are so high that the Irish company makes no profit. So all this money accumulates offshore and can't come back to the US unless some taxes are paid, which is why Tim Cook meets with Congress to try and lobby for a tax repatriation holiday. Which is also why Tim Cook is raising money in the debt markets to pay shareholders dividends - it's cheaper to pay a tiny bit of interest than pay tax. Absurd that such a rich company is doing this. Ironically, the money is already back in US - the Caymans entity invests the money in the US stock market via Braeburn Capital, a hedge fund based in Nevada and owned by Apple Inc!
  - crdoconnor 12y ago
    >So all this money accumulates offshore and can't come back to the US unless some taxes are paid, which is why Tim Cook meets with Congress to try and lobby for a tax repatriation holiday. Ironically a lot of this money would probably be repatriated tomorrow (with taxes fully paid) if Congress ruled out a tax holiday and committed itself to gradually raising rates. It's just the tantalizing hope of a tax holiday that keeps it abroad.
    - sp332 12y ago

tehwalrus 12y ago

Devil will be in the detail, and he's not giving any details yet. Without significant simplification of the tax system, no such tax bill will be accountant-proof, or treaty-proof.

awjr 12y ago
I'm going to assume that any significant off-shore charges from subsidiaries will be considered profit and the company will need to prove otherwise. Should cause a few cases to go through the law courts.

gadders 12y ago

I wonder if this will affect Ikea, which pretends to be a charity [1], as well as the usual Starbucks/Amazon/Google suspects. [1] http://www.economist.com/node/6919139 http://www.economist.com/node/6919139

icebraining 12y ago
It's not a charity, it's a non-profit. The comparison with the Gates Foundation makes no sense, there's no expectation that it should have a charitable purpose, it's simply a legal entity that has other goals instead of having a fiduciary duty to shareholders. In particular, it only receives tax benefits if it's classified an "Institution for General Benefit" (ANBI) by the Dutch IRS, which IKEA isn't.
- gadders 12y ago
  From the article: "What emerges is an outfit that ingeniously exploits the quirks of different jurisdictions to create a charity, dedicated to a somewhat banal cause, that is not only the world's richest foundation, but is at the moment also one of its least generous. The overall set-up of IKEA minimises tax and disclosure, handsomely rewards the founding Kamprad family and makes IKEA immune to a takeover."
  - icebraining 12y ago
    I know what the article says. I'm saying it's wrong. It's trying to apply the US concept of "foundation" to the Dutch concept, which is invalid.

Shivetya 12y ago

Funny how the say banks and multinationals will pay, I really think they should in turn put on every receipt how much the end consumer is actually paying in tax, all under the idea of disclosure. Food places like starbucks and McDonalds they could put it next to the mandated calorie count. This sandwich will cost 400 calories and 40 cents in built in taxes and twenty cents in sales taxes. People really need to understand just how much they are truly taxed, far too many see only the sales tax and not many more understand payroll. Indirect taxes is the big skeleton in the closet.

crdoconnor 12y ago
The tax incidence of profit taxes falls pretty much entirely on the shareholders. The consumer is unaffected. Companies that have their profits taxed at higher rates would sure LOVE to raise their prices to compensate for lost profits, but a little thing called competition prevents them from doing so. >People really need to understand just how much they are truly taxed Indeed. The level of tax literacy and misunderstanding among the general population appalls me sometimes. I can think of at least one example right now...
- mike_hearn 12y ago
  > The tax incidence of profit taxes falls pretty much entirely on the shareholders. The consumer is unaffected. Well, only if you believe profits aren't used for anything except dividends. The "consumer" can be affected when they don't get new products, or existing products are worse, or when they fail to be hired as an employee, etc.
  - crdoconnor 12y ago
    Theoretically if the profit tax approaches 100% then nobody will form companies because what's the point? Rest assured, though, the levels we are discussing here will have zero effect on Starbucks' ability or desire to bring us new pumpkin vanilla spice lattes every winter season.
- benmmurphy 12y ago

Mvandenbergh 12y ago

I'll be interested to see how this is implemented in practice. The way this kind of tax avoidance works is for subsidiaries in low-tax jurisdictions to charge the ones incorporated in higher tax jurisdictions high fees for things like access to IP. This "artificially" inflates the profits for the low-tax company and depresses the profits for the high-tax company. Artificially is in quotes because it's hard to establish a legal rule to determine what is and isn't fair pricing for IP and services which is why I'm interested in seeing how this will be enforced. Edit: the reason that so many of these were based in Ireland was because until 2015 Ireland won't have rules on this sort of intra-group "transfer pricing" transaction. You can't do this between two US or a UK and a US company because those countries have rules that prevent it.

grey-area 12y ago
I suppose one way to clamp down on any such activities would be to simply class all payments to subsidiaries in low-tax jurisdictions as qualifying for this extra tax. That would avoid any arguments over what exactly is a fair price for certain services or whether certain services/fees qualify.
- Mvandenbergh 12y ago
  You couldn't do that for payments between companies within the EU because of existing treaty obligations. Not to mention, how do you determine what counts as low tax? The UK a has substantially lower headline corporate tax rate than the US. That doesn't reflect the effective rate though.
- notahacker 12y ago
  And intra-group licensing costs and royalties should also be disregarded as costs for tax purposes, since there's no real or opportunity cost to allowing one part of the group to use another's IP except for the cost savings that can be generated by shifting the tax burden.
  - sokoloff 12y ago
    Imagine a scenario where McDonalds corp has both company owned stores and franchisee-owned stores and that both are charged the same, substantial amount for the use of McDs trademarks. Should the McDs owned store be wildly more profitable in the eyes of the tax authorities? Suppose that the franchisee and the company store both use the McDs supply chain to buy ingredients. Are those costs "real enough to count"? If not, why not? If so, why aren't the trademarks "real enough"? If the trademarks don't count intra-group, what if the trademarks are only licensed (for $1) subject to the use of the company supply chain for ingredients? This serves a legitimate purpose of protecting the trademark and giving the customers a uniform experience at all stores, or it serves as an underhanded tax dodge, depending on which reporter is writing the article... I'm merely suggesting that trying to author precise legislation around this area is inherently a slippery slope and "intra group IP licenses are barred" isn't going to be perfectly effective. Lawmakers have a legitimately hard problem to solve and their "attackers" have a lot at stake to find/exploit intended or unintended loopholes.

drsintoma 12y ago

The term "google tax" made me think is was related to google having to pay ISPs for using their tubes. Glad to see that is about actual tax evasion.

rahimnathwani 12y ago
Evasion !== Avoidance At least in the UK, these two words have entirely different meanings when applied to tax. Tax evasion is not paying tax which is due. Tax avoidance is arranging your activities to reduce or minimise the taxes which are due.
- ProAm 12y ago
  The activities that giant multinational corps take part in it is effectively the same thing.
  - bmelton 12y ago
    Only if we pretend that individuals don't do the same thing. When I check the box to count my daughter as a dependent, I am "avoiding" taxes. When a multi-national corporation inverts their company to Canada, they are "avoiding" taxes. So long as all of the above are within the rules, neither act is immoral.
    - lmm 12y ago
      Or both are. Here in the UK I've never made any attempt to optimize my taxes; I called HMRC once (when I saw a big increase in how much tax I was paying over the previous month's payslip) and they told me everything was fine, and that's the total extent of my interaction with them. (I even avoid ticking the gift aid box on charitable donations, as I think that's immoral). I agree that there is no legal obligation not to minmax your taxes, but I think there is a moral one.
      - NLips 12y ago
        Gift aid is a specific scheme created by the government to increase charitable giving. At the 20% income tax bracket, it makes no difference to you but helps the charity, and at the 40+% brackets it makes a difference to the charity and provides you with a fraction back. You still end up with less money than had you not given to charity, and it's MEANT to work this way. It's a very different kettle of fish to exploiting tax loop holes.

coldcode 12y ago

Good luck with that. There is no way short of global world government to force a company with subsidiaries and business all over the world to pay taxes everywhere.

awjr 12y ago
Don't think it's about everywhere. What they are trying to stop is the profits made in the UK being offset against artificial debts from another division of the same company in a different more tax efficient country.
- mike_hearn 12y ago
  The problem is profits aren't made in the UK at all. For big tech companies usually they have a subsidiary in a given country, and that subsidiary charges the parent company for access to its work/innovations/whatever. The subsidiary does not itself receive payment for the global companies operations in that country, despite how unintuitive it is. This is why the UK arms of these companies don't make any profit - they charge the parent companies more or less at cost. Meanwhile people who want to buy their services sign a deal with the Irish subsidiary. But legally these are different companies. Additionally it's impossible to say how much profit is being made in a particular country. You can count income quite easily, but then what percentage of the cost of developing Facebook can be accounted to servicing the UK market? It wouldn't make sense to allocate ALL the cost of creating Facebook to the US market and treat every other country as pure profit, as obviously there are costs involved with being international. I'm not convinces Osborne has any real clue about the morass he's wading in to here. It gets worse when you think about the possible future impact. Imagine Google and Facebook didn't have any UK presence at the moment but were looking to hire people there, because of an abundance of skilled people in, say, London. But entering the UK suddenly means a 25% tax on their UK sourced income. Why would they ever hire the first employee? If they stay out entirely, they aren't in UK jurisdiction so there'd be no reason for them to pay any tax there.
  - awjr 12y ago
    Amazon is a classic example of this, an apparently UK based selling business that in fact sells via Luxemburg with Amazon UK only being a fulfillment/delivery service.

motters 12y ago

I think this is good news. Companies such as Google and others have been avoiding paying taxes for too long. They do this in ways which up until now were fraudulent but technically legal, by creating fictional companies or by laundering money via havens.

ams6110 12y ago
Technically legal is by definition "not fraudulent." It is their duty to their shareholders to pay the minimum tax they legally must pay.

B5geek 12y ago

"Profit" is very easy to hide. Income, not so much. The difference is 'net' vs 'gross'. The horrid nature of current tax law is geared towards lawyers and accountants being creative. The system is geared to reward con-men and punish the honest. A flat-rate tax system based on income might be more effective but the real danger is the tax-breaks that companies get. I see this all the time with Ford/Chrysler/GM. "We will build a factory in your city/state/county if you give us X-billion in tax breaks." My thoughts: You want to sell your product don't you? In Canada we had a law called "The AutoPact" [1] which basically said that for every 3 cars that you sell in Canada, 1 must be built here. Corporate welfare will always be a greater hindrance to tax-coffers then personal welfare will ever be. Why are we paying companies so they have the privilege of taking our money? [1]http://en.wikipedia.org/wiki/Canada%E2%80%93United_States_Automotive_Products_Agreement http://en.wikipedia.org/wiki/Canada%E2%80%93United_States_Au...

pasbesoin 12y ago
When, in naval-gazing films and TV, an entertainer character insists on x % of "gross" revenue, this is why. There've been many articles and posts cited on HN that go into the tortured, and very profitable, machinations of entertainment industry financing and accounting. Some argue towards making such finance, e.g. taxes, simple to the point where it can't be gamed. The tradeoff is that finance is used as much if not more so than overt legislation, to steer policy, investment, and ultimately -- imperfect as they are -- outcomes. I'm not saying simplification is wrong. But keeping your system intact while you do it, is... well, not as simple as it might seem. But there is a lot of potential benefit. How much further would clean(er) energy be, if we weren't propping up carbon fuels to the tune of billions in subsidies every year (including a substantial part of e.g. the U.S. military budget)? Would the Mid-East be quite such a mess, if no one was continually pouring money into its weapons systems and dictatorships? Anyhoo, I typed way more than I intended. When an outfit is doing fantastically well, to all appearances, yet the profit is missing, then start looking at / going after the gross. They have to pay their way, just like everyone else. Perhaps all the more so, the more they insist upon being a "corporate person" with "personal" rights (e.g. speech, et al.). ---- P.S. As an actual person, with a few policy-minded exemptions aside, I am taxed on my gross income. Not my net. (E.g. I don't get to deduct my groceries, nor my auto insurance, nor...) (Although, state sales tax in the U.S. does vary by state and is often, when lowered, meant to lessen the regressive nature of said tax for low income earners with respect to essential goods -- you gotta eat.) Home owners get to deduct mortgage interest, while renters get no such break even though a significant chunk of their rent may effectively be paying the interest on the landlord's mortgage for the property. Pushing home ownership in the U.S. as a policy that apparently veered into the extreme, providing lots of marginal loans as raw inputs into the financial machinations that propelled the 2008 Great Recession. Anyway... I'm taxed against my gross income. There's no magic rule that says businesses can only be taxed against their net. It's all policy -- not natural law. And when they game the system beyond all measure, they should expect that, sooner or later, policy will be changed. The problem is in good part that, if they can make it later enough, they become another "too big". They've captured their regulation.

vegancap 12y ago

I'd rather see profits in the workers pockets than the UK government's coffers. If we keep ramping up taxes on large corporations, they're just going to move abroad. Take Starbucks for example, they're not even turning over a profit in the UK... yet they created thousands and thousands of jobs. We'll keep ramping up taxes, they'll close down stores, move abroad and then wonder why youth unemployment keeps rising.

wmeredith 12y ago
I find it rather amusing that you think the profits will end up in the worker's pockets: http://www.pewresearch.org/fact-tank/2014/11/08/with-41-of-global-wealth-in-the-hands-of-less-than-1-elites-and-citizens-agree-inequality-is-a-top-priority/ http://www.pewresearch.org/fact-tank/2014/11/08/with-41-of-g...
singlow 12y ago
There is no reason for a company like Starbucks to move its retail locations to avoid taxes. They might move other facilities such as corporate offices or manufacturing, but the stores themselves are either profitable or not and it can only serve the local area anyway. They can't sell cappuccinos to London commuters from a store in the Netherlands. They only leave if they can't make money at all. Although taxes may dissuade them from expanding, if the capital can have better return elsewhere.
GotAnyMegadeth 12y ago
Genuine question: Is there any evidence that Starbucks 'created' more jobs than it 'destroyed' through competition? I.e. It's not as if there weren't thousands of people working for coffee/tea shops before Starbucks came along.
- vegancap 12y ago
  I'd argue they brought coffee culture more to the British high-street. Coffee shops were few and far between and the demand was fairly low say 10 years ago. This also coincides with a lot of pub closures due to certain government regulations and increased taxes on alcohol.

DodgyEggplant 12y ago

Much ado about tax collecting. Less ado about how, and on what, big governments spend the tax money.

vixen99 12y ago
Now you're on to something really important! I am not aware (granted - I guess because I happen not to have seen it) of any really wide ranging high level discussion on this massive subject nor do I expect there to be. Sheep probably debate in their sheepish style, pecking orders but probably not the sheering.

ermintrude 12y ago

At least it hasn't taken the Tories nearly a whole term to begin to address this issue... Got to say I agree with this http://www.thetimes.co.uk/tto/news/politics/article4285739.ece http://www.thetimes.co.uk/tto/news/politics/article4285739.e... (paywall). Summary: Hodge wants to make it a criminal offence to sell or promote illegal tax avoidance schemes in the first place. So if HMRC challenge a scheme and it's found illegal, the lawyers/accountants who developed it can be criminally prosecuted as well as those who used it.

driverdan 12y ago
> Hodge wants to make it a criminal offence to sell or promote illegal tax avoidance schemes Isn't promoting something illegal already illegal by definition?
- binarymax 12y ago
  This sounds like something that isn't defined as illegal yet but might be in the grey area - and if HMRC decides it's illegal later then you are punished ex post facto.
- ermintrude 12y ago
  Apparently not: "HMRC can prosecute tax advisers if they try to hide schemes, but has no sanction against those that create and sell artificial trading arrangements designed solely to dodge taxes." That's what she wants to change.
  - pcrh 12y ago
    That's hardly likely to make any difference. The accountants and lawyers will simply move to wherever their activity is legal.
- vixen99 12y ago
  Definitions! llegal tax avoidance = tax evasion. You might as well talk about legal tax evasion.
12y ago

paulhauggis 12y ago

Low taxes? I almost fell off my chair. With all of the rules, regulations, not to mention v.a T. A 25% additional because we can tax doesn't seem very low or fair. If my company was having these taxes imposed on me, I would move all of my offices and companies out of the U.K. within the next couple of years. I will be interested to see what happens to the economy after these changed.

richardwhiuk 12y ago
You'd have to stop selling in the UK as well - that's the point.
- perlpimp 12y ago
  SWIFT transactions are pretty easy and establishing a network of professional resellers should not be hard.
  - tormeh 12y ago
    Oh, so you propose a prohibition-style network of underground resellers and whitewashing of money? You know that this way lies the need for a personal army, a white cat and an Italian accent, right?
tw04 12y ago
The only reason this even exists is google caving to wall street pressure. I doubt Sergey or Larry have any objections to paying taxes in the countries in which they generate profit.

delingpole 12y ago

In order to make this workable, the government would assume that certain industries make certain profit margins e.g. 8% assumed profit for the sale of goods to 32% assumed profit for the sale of services. [0][1] According to the FT: "the new tax would be a “deemed profits” tax rather than a corporation tax, so as to sidestep issues about double tax treaties. [...] the Treasury would identify profits that escaped tax in the UK because of royalty arrangements or the absence of a taxable presence. [...] It seems to be something completely novel . . . It is a huge stick that will stop this artificial avoidance. The difficulty will be how it is defined in practice.” [2] [0] Similar way to the way the UK flat rate VAT scheme works [1]http://www.internationallawoffice.com/newsletters/Detail.aspx?g=df76beff-e892-4399-a960-04b1de632483 http://www.internationallawoffice.com/newsletters/Detail.asp... [2] http://www.ft.com/cms/s/0/127010ea-7af9-11e4-b630-00144feabdc0.html#ixzz3KqqtmghP http://www.ft.com/cms/s/0/127010ea-7af9-11e4-b630-00144feabd...

nly 12y ago

Here's a list of all the companies registered in the UK with the string 'Google' in them, that aren't listed as 'dissolved' (there are a lot of those), and aren't obviously registered by morons[0][1][2][3][4][5][6][7][8][9] who think they can infringe on the trademark. BR017040 GOOGLE COMMERCE LIMITED UK ESTABLISHMENT FC031970 GOOGLE COMMERCE LIMITED UK ESTABLISHMENT 5903713 GOOGLE PAYMENT LIMITED 3977902 GOOGLE UK LIMITED 9183796 GOOGLE VENTURES UK MANAGEMENT COMPANY, LIMITED I believe the first two are part of their Double Irish tax dodge: http://vimeo.com/68581263 http://vimeo.com/68581263 so those should disappear soon. [0] http://www.endole.co.uk/company/09054162/google-ninjas-limited http://www.endole.co.uk/company/09054162/google-ninjas-limit... [1] http://www.endole.co.uk/company/08533581/google-pizza-ltd http://www.endole.co.uk/company/08533581/google-pizza-ltd [3] http://www.endole.co.uk/company/08770094/google-it-ltd http://www.endole.co.uk/company/08770094/google-it-ltd [4] http://www.endole.co.uk/company/09263100/google-international-web-ltd http://www.endole.co.uk/company/09263100/google-internationa... [5] http://www.endole.co.uk/company/08537202/google-ads-ltd http://www.endole.co.uk/company/08537202/google-ads-ltd [6] http://www.endole.co.uk/company/08497535/google-analytics-limited http://www.endole.co.uk/company/08497535/google-analytics-li... [7] http://www.endole.co.uk/company/08615290/google-logistics-ltd http://www.endole.co.uk/company/08615290/google-logistics-lt... [8] http://www.endole.co.uk/company/09042316/google-property-limited http://www.endole.co.uk/company/09042316/google-property-lim... [9] http://www.endole.co.uk/company/08573677/google-recruitment-limited http://www.endole.co.uk/company/08573677/google-recruitment-...

hkmurakami 12y ago
9054162 GOOGLE NINJAS LIMITED 8533581 GOOGLE PIZZA LTD. OK. Had to highlight these two.
- Aardwolf 12y ago
  Ninjas and Pizzas - the list is missing turtles.

lukasm 12y ago

VAT 0%,5%,20%. 1% revenue tax, companies can deduct only 30-80% VAT. No corporate Tax, no income Tax. Tax land and properties a lot.

touristtam 12y ago

Funny how the same UK government propose to have devolution of corporation tax in Northern Ireland (NI), which is still part of the UK so the NI Government can match the corporate tax of the Republic of Ireland. http://www.bbc.co.uk/news/uk-northern-ireland-30131556 http://www.bbc.co.uk/news/uk-northern-ireland-30131556

gaius 12y ago

Google is investing £1bn in a new headquarters building in London. Seems an awful lot, for a country where they make no profit.