From what I have been reading, Apple were charged 12.5%
However I obviously cannot confirm this so will sit back and see what happens next.
This story has a way to go yet and I am not convinced the EU will come out of it looking good.
However I am not a tax expert, so who knows.
Totally agree - pretty sure the Irish government will win the appeal.
I hope they do, the EU should not be able to punish companies for decisions made decades ago. If Ireland lose this will have, ultimately, a massive negative financial impact on them. The Apple fine will not balance the potential future revenue loss.
Except it is not being punished, it has to pay the tax it owes. Part of being in the EU means you need to enforce your own tax laws.
If I get a letter from the council claiming council tax I forgot to pay 20 years ago, then I am not being 'punished', I am just paying what I owe.
I don't care what the Irish do with the money, they could set it on fire for all I care, the point is that they willfully ignored tax evasion by a major company, probably to keep the company from going overseas, yet they were quite happy to abuse the structure of the EU that made the entire thing possible in the first place. If the EU did not exist then Apple would have been unable to funnel all their profits within the EU through one country.
But they did pay the tax they owed according to Irish law. I agree it should be higher but it wasn't ...this is an EU diktat.
Bottom line is that no one will come out of this looking good.
Incidentally, as I stated in the Brexit thread, the ability of the EU to overrule sovereign law was one of my reasons to vote exit.
They are not overruling sovereign law, they are telling an EU state to enforce its own laws.
Take Greece for example, Greek taxes are hilariously easy to avoid, hence its current situation. However everyone avoiding tax is doing so legally and within the law, the EU has no powers to force the Greek government to claim back tax that has been legally avoided.
We shall see. As I said I am not an expert in this field and, furthermore, I do not see anyone coming out of this smelling of roses.
It still reinforces my particular view that we are better off out of the EU but let's save that for the Brexit thread and leave this thread to run on what will be a very interesting subject.
In 2015 Starbucks had 414 licensed stores and 428 directly operated outlets. Despite racking up £3Bn of sales over the last decade they have paid just £8.5M in corporation tax.
Did they really make no profits? They purchase coffee from Switzerland (!) and pay large amounts of royalties for the logo on the cups to a non EU subsidiary which in turn owns the intelectual property. If the UK starbucks retail operation was a third party operation truly running at arms length then it would simply not be operating on virtually zero profits on a £3Bn turnover. It would pay x for the brand and would go out to the coffee market to secure the best deals available.
Why does this matter?
Because locally owned coffeee shops are going out of business. Because Starbucks and those employing this model can pay for the best marketing and best locations given that the entity doesn't have an overhead aka HMRC. And because this model erodes the tax base of national governments.
It is clear that the adverse publicity has had an impact - Starbucks has moved its European HQ from Amsterdam to London and is committed to paying the living wage plus offering interest free loans to help new employees pay deposits on accommodation. And it is starting to pay corporation tax.
I am not familiar with the details of the Apple case but the EU may well be tackling the "double Irish" as being anti competitive or State aid. Essentially Europe wide profits are funnelled into one Irish Group entity and before tax is applied c.95% is funnelled into another Irish group company.
Standard transfer pricing except the second company (remember this is the one with 95% x 95% of ALL EU wide profits) appears not to be exposed to Irish tax. And it's not US based so it is effectively in cyberspace!
Apples response to get the US onside is to promise to repatriate $325Bn into the US and pay tax. This is important because it is widespread amongst IT companies and has now spread to ecommerce as well as Starbucks.
[tax] Base Erosion and Profit Shifting (BEPS) may well be in the interests of corporations and their shareholders as indicated and supported by some posters on this thread. But the Apple case and all the other possible cases in the pipeline all add up.
The biggest cause for concern is that research undertaken since 2013 confirms the potential magnitude of the BEPS problem. Estimates conservatively indicate annual losses of anywhere from 4 - 10% of global corporate income tax (CIT) revenues, i.e. USD 100 to 240 billion annually. That could go a long, long way to bringing government deficits under 3% of GDP which in turn would negate the supposed need for austerity and making the common people pay for macro economic policy failures and the failure to regulate financial services.
Base erosion and profit shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low, resulting in little or no overall corporate tax being paid. Given that developing countries need every dollar of tax revenue and that G20 countries are sometimes choosing austerity to return deficits to < 3% GDP one can immediately see that collection of tax from multinationals who maintain aggressive profit shifting strategies might well contribute to stabilising government finances.
I'm afraid that what started out as a healthy debate between corporations and governments to avoid double taxation has ended up in some cases as double non-taxation!
In particular points 119(!) onwards articulate concerns about competition distortion and tax base erosion in a far clearer way than I could ever hope to achieve. My interest is a hobby - theirs is based on a lifetime of work and study at the highest level in the subject. It appears that implementation of new transfer pricing guidelines may begin next year but I have no idea if this is on schedule nor how it will be enforced. The OP @PragueAddick talked of specific examples like companies and costs of building hospitals. My focus is on the great con aka austerity where governments are supposed to shrink economies in order to balance revenues and expenditures but it is two sides of the same coin.
I don't have the time nor the expertise to add up all of the possible ways to restore public finances to order. And I fully understand the argument that reducing corporation tax might increase investment and jobs etc. But BEPS and TP is all about a certain class of organisation avoiding corporation tax altogether. One can argue that they create jobs, pay PAYE and VAT but so do their competitiors.
Meanwhile the Eurozone has just reported that its GDP has returned to a level higher than 2007 and Italy and France have both reported reductions in unemployment of 60,000 in just one calender month. The relevance of this is twofold: i) The Eurozone is in the main the four main European economies of Germany, France, Italy and Spain - tax and spending policies within these four are key to the future of Europe ii) Growth in Europe and particularly the Eurozone negates the claim that the UK path is the only way forwards and that we should ignore all approaches taken elsewhere. This is not to say the largest European economies have everything right but that with the full in oil prices and the introduction of quantitative easing, Europe has returned to growth.
In summary, tax and the politics of tax is important. However it is but one part of the challenges which the G20 face this century. Our children and our children's children also need to consider geopolitical risk, health economics and a new economic approach - perhaps an update of Keynsian theories to match this century? And all this without even considering how access to content and IT innovation will re shape the world by 2030.
If the centre left are unable or unwilling to take up this challenge then there are plenty like Corbyn, Jones and Varoufakis who will follow some of those points outlined by Chomsky higher up.
Corbyn is probably going to win with 60% again - only this time the Labour Party is becoming a mass movement with 30-40,000 new members every month. If May is determined to follow the referendum decision and take us out of the EU then that takes away that supra-national remedy. If you think 1% Corporation Tax in Ireland is poor then there are other tax avoidance measures which are quietly being closed down like 3% VAT in Luxembourg for ecommerce.
However UK dependencies like Bermuda, Isle of Man and Jersey are a whole different ball game. Ever wondered who funds Farage and anti EU Tories? Try looking at articles and links on the tax justice network website - I've not found a silver bullet but there's a book coming out next year written by somebody who spent several years training as a wealth management adviser to the uber rich.
PS none of this is about the politics of envy or hating the rich. Just highlighting that collection of taxes might well put the West on a more stable economic and social footing?
From what I have been reading, Apple were charged 12.5%
However I obviously cannot confirm this so will sit back and see what happens next.
This story has a way to go yet and I am not convinced the EU will come out of it looking good.
However I am not a tax expert, so who knows.
Totally agree - pretty sure the Irish government will win the appeal.
I hope they do, the EU should not be able to punish companies for decisions made decades ago. If Ireland lose this will have, ultimately, a massive negative financial impact on them. The Apple fine will not balance the potential future revenue loss.
Except it is not being punished, it has to pay the tax it owes. Part of being in the EU means you need to enforce your own tax laws.
If I get a letter from the council claiming council tax I forgot to pay 20 years ago, then I am not being 'punished', I am just paying what I owe.
I don't care what the Irish do with the money, they could set it on fire for all I care, the point is that they willfully ignored tax evasion by a major company, probably to keep the company from going overseas, yet they were quite happy to abuse the structure of the EU that made the entire thing possible in the first place. If the EU did not exist then Apple would have been unable to funnel all their profits within the EU through one country.
But they did pay the tax they owed according to Irish law. I agree it should be higher but it wasn't ...this is an EU diktat.
Bottom line is that no one will come out of this looking good.
Mate, it is relatively simple. It is not whether or not they paid at the rate of 12.5%. Doubtless they did. The question is the amount of profit to which this 12.5% was applied.
It is also not fundamentally about the initial agreement. When that was signed, Apple was not the company it is today. It was signed before anyone had even thought of the IPod.
As I keep saying, (doubtless much to @bobmunro 's irritation) Apple, Starbucks (as @seriously_red explains above) Amazon, Facebook and Google reduce their tax bases (the amount on which a given rate of corporate income tax is applied) by making up fairy tales about the way their businesses work. The tax authorities, for reasons they should be obliged to explain, choose to turn a blind eye to these big boys, whereas if you or I tried the same schemes, they would be all over us like a rash.
As @Fiiish says, all the EU are doing is putting pressure on the national tax authorities to do their bloody jobs. How you can think that is any kind of bad thing, is quite beyond me. After all, have you not been one of those calling for or hoping for an EU State Aid investigation into the Olympic Stadium contract?
I tell you what. I fancy the Irish electorate won't be as sanguine as you. That is a fragile coalition government over there, and I reckon their electorate will tell them to collect the money and build some bloody hospitals with it.
I don't like any of this but they took advantage, as many do, as far as they could push ...and the Irish government have willingly accepted it because it attracts more US companies to take advantage of the tax situation.
I'd love the Irish populace to put the pressure on and get the money to be used in a beneficial way. But in the long run, this may mean they then lose the financial benefits from the US companies who may move elsewhere.
There is far too much dirt here for any of those involved to emerge well.
Bottom line, normal people will not be the winners.
This could turn out to be an unexpected benefit for Brexit.
If the EU does force through this fine and if, as rumoured, Philip Hammond reduces corporation tax to 15%, a number of US companies currently using Ireland may change tack and make their base in UK instead.
Going back to my original point, I was highlighting that this may give us an opportunity if corporation tax were reduced in UK to 15% which would be the lowest in Europe.
However my argument was based upon the fact that I thought Ireland were charging Apple (and others) 12.5%.
I should have read the link from @PragueAddick more closely as I now see they are charging 1%, if not less.
Ireland should definitely be penalised for this ...why are Apple getting the fine not the government of Ireland? As the competition commissioner stated, "Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules".
I am not absolving Apple of blame but they took what they were offered ...surely the Irish government is more culpable.
Yep. If only our Government were working on how to eliminate this, and beefing up HMRC to collect the taxes due under current fiscal regime, we might be planning how to deploy it better to benefit the NHS, the care system, the police and security system.
But oh, no, we are too busy taking back control of..well... something else, obviously.
Behind a paywall but think all can read the first two paras. A bit more
Launched almost three years ago, the commission’s investigation alleged that the US online retailer benefited from a sweetheart tax deal that granted it almost a decade of illegal state support from Luxembourg, the hub for its European operations.
A Financial Times analysis of Amazon’s Luxembourg accounts shows that over the next decade, the EU sites paid the partnership nearly €4bn in royalties for using Amazon’s name and know-how. In the same period, Amazon’s European operations reported a total profit of €11m on net turnover of about €60bn.
While Amazon sent about €1bn of those royalties back to the US, where they were taxed, the remaining nearly €3bn was not. A US tax court ruling in March has forced Amazon to restate its European figures and move some of that €3bn stateside to be taxed — a decision that will change how much Luxembourg will be required to recover.
I'll resist the obvious pro EU point, and of course I know it was Juncker as Luxembourg PM who signed this deal. Let's hope he suffers as a result.
The key point is that the EC has rumbled this particular fairy tale and is prepared to take action. To remind you, every time you buy in the UK from Amazon and it is delivered from one of their many huge UK fulfilment centres, you get an invoice from Luxembourg, perpetuating the fairy tale that that is the location where you did business with them. HMRC and UK Gov know perfectly well that this is a firy tale and do nothing about it. It is not even on the agenda at the Tory party conference, AFAIK.
Behind a paywall but think all can read the first two paras. A bit more
Launched almost three years ago, the commission’s investigation alleged that the US online retailer benefited from a sweetheart tax deal that granted it almost a decade of illegal state support from Luxembourg, the hub for its European operations.
A Financial Times analysis of Amazon’s Luxembourg accounts shows that over the next decade, the EU sites paid the partnership nearly €4bn in royalties for using Amazon’s name and know-how. In the same period, Amazon’s European operations reported a total profit of €11m on net turnover of about €60bn.
While Amazon sent about €1bn of those royalties back to the US, where they were taxed, the remaining nearly €3bn was not. A US tax court ruling in March has forced Amazon to restate its European figures and move some of that €3bn stateside to be taxed — a decision that will change how much Luxembourg will be required to recover.
I'll resist the obvious pro EU point, and of course I know it was Juncker as Luxembourg PM who signed this deal. Let's hope he suffers as a result.
The key point is that the EC has rumbled this particular fairy tale and is prepared to take action. To remind you, every time you buy in the UK from Amazon and it is delivered from one of their many huge UK fulfilment centres, you get an invoice from Luxembourg, perpetuating the fairy tale that that is the location where you did business with them. HMRC and UK Gov know perfectly well that this is a firy tale and do nothing about it. It is not even on the agenda at the Tory party conference, AFAIK.
Not sure if I'm happy with vast multinationals being asked to pay tax - I thought it was optional?
I have banged on about it before but a tax in the country where the sale takes place (that can be offset against any CT liability in that country) would be a simple mechanism for collecting revenue. These bastards have to complete VAT declarations so the amount of their turnover is already reported. Simply charge them a tax of say 2% on that. It would NOT work like VAT.
Although I agree there needs to be a way for these companies to be made to pay their tax, not sure a tax on revenue would work, what if the company makes a genuine loss/break even? You can only tax profits of a company in my view, but we need a way of correctly obtaining profit numbers.
It's probably used much more widely than we think....... calling Roland reminds me of a number of IT Contractors who were employed through the IOM, such a crazy tax dodge that was.
@PragueAddick if i've read that correctly, the illegal bit if you like is the fact Luxembourg didn't take them enough tax? So it's not going to help the UK financially?
@PragueAddick if i've read that correctly, the illegal bit if you like is the fact Luxembourg didn't take them enough tax? So it's not going to help the UK financially?
Yes. Not directly. They have ruled that Luxembourg - and specifically Juncker - gave them a sweetheart deal, which has given them an unfair competitive advantage, which makes it unfair State Aid. However, indirectly it could help the UK in two ways
1. If Amazon have to unwind the scheme, they are more likely to book sales in the UK and thus report profits there (and in other EU countries as appropriate).
2. In principle at least it would encourage HMG and HMRC to review what Amazon are up to with UK derived revenue and take steps to ensure they are reported and taxed correctly. In principle.
It also of course deters other smartasses from using the same Luxembourg loophole. Next stop, the Netherlands, hopefully, starting with Uber and then going on to the more complex Google one, which utilises both the Netherlands and Ireland.
I guess they'll follow the same model but pay the right tax, i.e. they'll still push profit to wherever the cheapest tax rate is, let hope it's the UK!
I guess they'll follow the same model but pay the right tax, i.e. they'll still push profit to wherever the cheapest tax rate is, let hope it's the UK!
Were you a remain voter then, I never knew
Sure, when Johnson or the Cartoon Aristocrat is PM, the first thing they will do is bring corporate tax down to undercut Ireland. They want to make the UK the Lidl of Europe. Good luck with that.
At the risk of sounding like a communist here, actually, no, I don't care. We should be pillaging these companies based on how they take the piss. I couldn't give two hoots about them doing it within the law or taking advantage of the 'system'. I'd love a government that had the balls to absolutely hammer the amazons and googles of the world
The only reason we have tax laws that supports an industry of tax accountants is because government has written tax laws that attempt to be fair, by not catching those it was not intended to catch. It's that complexity which gives the loopholes for the targeted tax payers to escape taxes.
There is a solution for getting more taxes out of the big global corporates, you just block all loopholes by not having rules in the first place. You allow HMRC to decide the rate of tax companies should pay and what it is applied to - UK revenue/non-UK revenues/gross profit/net profit/ etc. HMRC can reduce tax obligation for non-UK corporate based on job creation benefits for the UK.
No HMRC decisions can be disputed in the Courts because there are no fixed rules to interpret.
Problem is uncertainty. Uncertainty is a key risk factored into corporate decisions, the UK would become unattractive as a trading base for overseas companies and would be an unattractive place to sell goods and services.
The alternative is to have a simple fixed tax that couldn't be avoided. The problem with a simple approach is that it cannot bear down fairly on different shapes of businesses - high or low overheads/cost of sales/turnover/capital resources/depreciation. Good businesses could fail and bad businesses could succeed purely because of the tax basis.
Just pointing out there is not a simple solution that any government can implement, a blunt solution that gets fair taxes out of the global giants will have far reaching unintended negative consequences.
I believe taxation is a clumsy means of re-distributing wealth, because most tax revenues are spent for political ends, little gets applied where it should best be directed. Far better to require a percentage of profits to be automatically paid as wages rather than be paid as tax, with the rest being paid as dividends. Give the money direct to employees to increase wages and economic activity, rather than pass to government to hand some of it back as Universal Credits to subsidise the low wage levels paid by employers. I don't see little value in chasing corporate tax revenues if this approach is used. Only the dividends paid by corporates need taxing, and there we need to be careful, as much of it supports small savers and pension funds.
There is only justification in corporates retaining significant profits if they are newly established businesses that need to recoup the original risk capital, and obtain a commensurate return for the risk. Once risk capital is recouped, the entrepreneurs obtain their reward by typically selling all or part of their interest and the companies become publicly owned. Once they are public companies, the dividends paid from profits are received, after tax, mostly by pension funds and financial institutions. The now superrich original entrepreneurs who retain some shares do not benefit to any greater extent than you or I who might be small savers/investors who indirectly hold the shares.
So profits are not a dirty word, and shouldn't be taxed out of existence, they just need to be paid out entirely as taxable dividends and with those dividends only available from what is left over after employees have had a fair share of the revenues in the form of wages.
These are the changes I will make when I run the country.
At the risk of sounding like a communist here, actually, no, I don't care. We should be pillaging these companies based on how they take the piss. I couldn't give two hoots about them doing it within the law or taking advantage of the 'system'. I'd love a government that had the balls to absolutely hammer the amazons and googles of the world
As much as I agree with your sentiments, having a taxation system based on the amount of urine extracted would be a retrograde step in my opinion!
At the risk of sounding like a communist here, actually, no, I don't care. We should be pillaging these companies based on how they take the piss. I couldn't give two hoots about them doing it within the law or taking advantage of the 'system'. I'd love a government that had the balls to absolutely hammer the amazons and googles of the world
As much as I agree with your sentiments, having a taxation system based on the amount of urine extracted would be a retrograde step in my opinion!
I know, and I appreciate as Dippenhall highlighted above it's just not that simple. It just winds me up when I catch the tail end of the news at ten last night and they were doing a piece on families of 4 having to turn to the council for emergency accommodation because they couldn't afford to rent privately anymore, and the temporary accommodation they were paying for was still £200 a week, and they are working people. the father was a financial manager in a business according to the piece, they seemed like decent hardworking people, in jobs, yet still cannot afford a roof over their heads. It's when you see things like this, you think to yourself, if the system wasn't such a mess, our government could have more money to pass onto councils to help.
I've learnt a lot on this thread about it to be fair from the likes of yourself, prague, dippenhall and rob7lee, and understand it's a real clusterfuck, I just still can't get my head round it from an ethical point of view
Although I agree there needs to be a way for these companies to be made to pay their tax, not sure a tax on revenue would work, what if the company makes a genuine loss/break even? You can only tax profits of a company in my view, but we need a way of correctly obtaining profit numbers.
It's probably used much more widely than we think....... calling Roland reminds me of a number of IT Contractors who were employed through the IOM, such a crazy tax dodge that was.
Tax anyone with t/o of over £100m at 2%. If they have to put their prices up 2% to cover it, tough. It's only what any legitimately established tax payer in the UK would be doing anyway, and levels the playing field a little tiny bit.
And it might stop those c***s at HMRC fining upright citizens hundreds of pounds for sending their returns in a few days late while amazon skip off paying any tax at all.
Although I agree there needs to be a way for these companies to be made to pay their tax, not sure a tax on revenue would work, what if the company makes a genuine loss/break even? You can only tax profits of a company in my view, but we need a way of correctly obtaining profit numbers.
It's probably used much more widely than we think....... calling Roland reminds me of a number of IT Contractors who were employed through the IOM, such a crazy tax dodge that was.
Tax anyone with t/o of over £100m at 2%. If they have to put their prices up 2% to cover it, tough. It's only what any legitimately established tax payer in the UK would be doing anyway, and levels the playing field a little tiny bit.
And it might stop those c***s at HMRC fining upright citizens hundreds of pounds for sending their returns in a few days late while amazon skip off paying any tax at all.
The whole system is totally fucked.
Not sure business is quite that simple, your making the assumption a £100m and/or +2% turnover means making a profit.
For instance I work in insurance/reinsurance. Depending on many factors, but as an example take Hurricane's we might make or lose money. Last year we might have made $150m as there were none. This year we might lose $50m as theres been a few - don't think it would be right to tax a company that made $50m loss. Our turnover is near $1bn.
I'm sure theres 101 other types of business who for varying reasons each year could make or lose money.
A turnover tax has in fact been suggested by Macron and the French... and supported by others... but this is simply another form of VAT.
Base erosion and profit shifting (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the inclusive framework at the OECD, over 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS.
As posted on this thread some years back(!) there are estimate that BEPS is costing up to 10% of corporation tax every year. That's could make a significant contribution to covering deficits and forgetting all about austerity.
The situation needs to be confronted and changed. At present western economies allow up to 95% of profits to be transferred out of the country of purchase due to royalty charges (invoices) based upon intelectual property. So that's 95% of a cup of coffee, an itune, an ebook or anything else. The Amazon case is not isolated.
Why 95%? It's a legacy number left over from the last century. How easily can that be changed / restricted? What is required to establish a common approach by the richest countries couples while stepping up the anticompetitive approach as seen in the cases against Apple, Facebook etc.
And this is important not just because of the numbers involved but because of the trends and where commerce will be in 2025
Although I agree there needs to be a way for these companies to be made to pay their tax, not sure a tax on revenue would work, what if the company makes a genuine loss/break even? You can only tax profits of a company in my view, but we need a way of correctly obtaining profit numbers.
It's probably used much more widely than we think....... calling Roland reminds me of a number of IT Contractors who were employed through the IOM, such a crazy tax dodge that was.
Tax anyone with t/o of over £100m at 2%. If they have to put their prices up 2% to cover it, tough. It's only what any legitimately established tax payer in the UK would be doing anyway, and levels the playing field a little tiny bit.
And it might stop those c***s at HMRC fining upright citizens hundreds of pounds for sending their returns in a few days late while amazon skip off paying any tax at all.
The whole system is totally fucked.
Not sure business is quite that simple, your making the assumption a £100m and/or +2% turnover means making a profit.
For instance I work in insurance/reinsurance. Depending on many factors, but as an example take Hurricane's we might make or lose money. Last year we might have made $150m as there were none. This year we might lose $50m as theres been a few - don't think it would be right to tax a company that made $50m loss. Our turnover is near $1bn.
I'm sure theres 101 other types of business who for varying reasons each year could make or lose money.
I take your point. But some sort of turnover threshold takes small businesses out of the scope of this. And the turnover tax charged could be offset against a CT charge if and when incurred, so ups and downs would even out.
The only reason we have tax laws that supports an industry of tax accountants is because government has written tax laws that attempt to be fair, by not catching those it was not intended to catch. It's that complexity which gives the loopholes for the targeted tax payers to escape taxes.
There is a solution for getting more taxes out of the big global corporates, you just block all loopholes by not having rules in the first place. You allow HMRC to decide the rate of tax companies should pay and what it is applied to - UK revenue/non-UK revenues/gross profit/net profit/ etc. HMRC can reduce tax obligation for non-UK corporate based on job creation benefits for the UK.
No HMRC decisions can be disputed in the Courts because there are no fixed rules to interpret.
Problem is uncertainty. Uncertainty is a key risk factored into corporate decisions, the UK would become unattractive as a trading base for overseas companies and would be an unattractive place to sell goods and services.
The alternative is to have a simple fixed tax that couldn't be avoided. The problem with a simple approach is that it cannot bear down fairly on different shapes of businesses - high or low overheads/cost of sales/turnover/capital resources/depreciation. Good businesses could fail and bad businesses could succeed purely because of the tax basis.
Just pointing out there is not a simple solution that any government can implement, a blunt solution that gets fair taxes out of the global giants will have far reaching unintended negative consequences.
I believe taxation is a clumsy means of re-distributing wealth, because most tax revenues are spent for political ends, little gets applied where it should best be directed. Far better to require a percentage of profits to be automatically paid as wages rather than be paid as tax, with the rest being paid as dividends. Give the money direct to employees to increase wages and economic activity, rather than pass to government to hand some of it back as Universal Credits to subsidise the low wage levels paid by employers. I don't see little value in chasing corporate tax revenues if this approach is used. Only the dividends paid by corporates need taxing, and there we need to be careful, as much of it supports small savers and pension funds.
There is only justification in corporates retaining significant profits if they are newly established businesses that need to recoup the original risk capital, and obtain a commensurate return for the risk. Once risk capital is recouped, the entrepreneurs obtain their reward by typically selling all or part of their interest and the companies become publicly owned. Once they are public companies, the dividends paid from profits are received, after tax, mostly by pension funds and financial institutions. The now superrich original entrepreneurs who retain some shares do not benefit to any greater extent than you or I who might be small savers/investors who indirectly hold the shares.
So profits are not a dirty word, and shouldn't be taxed out of existence, they just need to be paid out entirely as taxable dividends and with those dividends only available from what is left over after employees have had a fair share of the revenues in the form of wages.
These are the changes I will make when I run the country.
Didn't understand much but I'd probably vote for you in front of May
Comments
Take Greece for example, Greek taxes are hilariously easy to avoid, hence its current situation. However everyone avoiding tax is doing so legally and within the law, the EU has no powers to force the Greek government to claim back tax that has been legally avoided.
It still reinforces my particular view that we are better off out of the EU but let's save that for the Brexit thread and leave this thread to run on what will be a very interesting subject.
Did they really make no profits? They purchase coffee from Switzerland (!) and pay large amounts of royalties for the logo on the cups to a non EU subsidiary which in turn owns the intelectual property. If the UK starbucks retail operation was a third party operation truly running at arms length then it would simply not be operating on virtually zero profits on a £3Bn turnover. It would pay x for the brand and would go out to the coffee market to secure the best deals available.
Why does this matter?
Because locally owned coffeee shops are going out of business. Because Starbucks and those employing this model can pay for the best marketing and best locations given that the entity doesn't have an overhead aka HMRC. And because this model erodes the tax base of national governments.
It is clear that the adverse publicity has had an impact - Starbucks has moved its European HQ from Amsterdam to London and is committed to paying the living wage plus offering interest free loans to help new employees pay deposits on accommodation. And it is starting to pay corporation tax.
I am not familiar with the details of the Apple case but the EU may well be tackling the "double Irish" as being anti competitive or State aid. Essentially Europe wide profits are funnelled into one Irish Group entity and before tax is applied c.95% is funnelled into another Irish group company.
Standard transfer pricing except the second company (remember this is the one with 95% x 95% of ALL EU wide profits) appears not to be exposed to Irish tax. And it's not US based so it is effectively in cyberspace!
Apples response to get the US onside is to promise to repatriate $325Bn into the US and pay tax. This is important because it is widespread amongst IT companies and has now spread to ecommerce as well as Starbucks.
[tax] Base Erosion and Profit Shifting (BEPS) may well be in the interests of corporations and their shareholders as indicated and supported by some posters on this thread. But the Apple case and all the other possible cases in the pipeline all add up.
The biggest cause for concern is that research undertaken since 2013 confirms the potential magnitude of the BEPS problem. Estimates conservatively indicate annual losses of anywhere from 4 - 10% of global corporate income tax (CIT) revenues, i.e. USD 100 to 240 billion annually. That could go a long, long way to bringing government deficits under 3% of GDP which in turn would negate the supposed need for austerity and making the common people pay for macro economic policy failures and the failure to regulate financial services.
Base erosion and profit shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low, resulting in little or no overall corporate tax being paid. Given that developing countries need every dollar of tax revenue and that G20 countries are sometimes choosing austerity to return deficits to < 3% GDP one can immediately see that collection of tax from multinationals who maintain aggressive profit shifting strategies might well contribute to stabilising government finances.
I'm afraid that what started out as a healthy debate between corporations and governments to avoid double taxation has ended up in some cases as double non-taxation!
If you are interested in this subject then click this link:
oecd.org/ctp/beps-frequentlyaskedquestions.htm
In particular points 119(!) onwards articulate concerns about competition distortion and tax base erosion in a far clearer way than I could ever hope to achieve. My interest is a hobby - theirs is based on a lifetime of work and study at the highest level in the subject. It appears that implementation of new transfer pricing guidelines may begin next year but I have no idea if this is on schedule nor how it will be enforced. The OP @PragueAddick talked of specific examples like companies and costs of building hospitals. My focus is on the great con aka austerity where governments are supposed to shrink economies in order to balance revenues and expenditures but it is two sides of the same coin.
I don't have the time nor the expertise to add up all of the possible ways to restore public finances to order. And I fully understand the argument that reducing corporation tax might increase investment and jobs etc. But BEPS and TP is all about a certain class of organisation avoiding corporation tax altogether. One can argue that they create jobs, pay PAYE and VAT but so do their competitiors.
Meanwhile the Eurozone has just reported that its GDP has returned to a level higher than 2007 and Italy and France have both reported reductions in unemployment of 60,000 in just one calender month. The relevance of this is twofold:
i) The Eurozone is in the main the four main European economies of Germany, France, Italy and Spain - tax and spending policies within these four are key to the future of Europe
ii) Growth in Europe and particularly the Eurozone negates the claim that the UK path is the only way forwards and that we should ignore all approaches taken elsewhere. This is not to say the largest European economies have everything right but that with the full in oil prices and the introduction of quantitative easing, Europe has returned to growth.
In summary, tax and the politics of tax is important. However it is but one part of the challenges which the G20 face this century. Our children and our children's children also need to consider geopolitical risk, health economics and a new economic approach - perhaps an update of Keynsian theories to match this century? And all this without even considering how access to content and IT innovation will re shape the world by 2030.
If the centre left are unable or unwilling to take up this challenge then there are plenty like Corbyn, Jones and Varoufakis who will follow some of those points outlined by Chomsky higher up.
Corbyn is probably going to win with 60% again - only this time the Labour Party is becoming a mass movement with 30-40,000 new members every month. If May is determined to follow the referendum decision and take us out of the EU then that takes away that supra-national remedy. If you think 1% Corporation Tax in Ireland is poor then there are other tax avoidance measures which are quietly being closed down like 3% VAT in Luxembourg for ecommerce.
However UK dependencies like Bermuda, Isle of Man and Jersey are a whole different ball game. Ever wondered who funds Farage and anti EU Tories? Try looking at articles and links on the tax justice network website - I've not found a silver bullet but there's a book coming out next year written by somebody who spent several years training as a wealth management adviser to the uber rich.
PS none of this is about the politics of envy or hating the rich. Just highlighting that collection of taxes might well put the West on a more stable economic and social footing?
It is also not fundamentally about the initial agreement. When that was signed, Apple was not the company it is today. It was signed before anyone had even thought of the IPod.
As I keep saying, (doubtless much to @bobmunro 's irritation) Apple, Starbucks (as @seriously_red explains above) Amazon, Facebook and Google reduce their tax bases (the amount on which a given rate of corporate income tax is applied) by making up fairy tales about the way their businesses work. The tax authorities, for reasons they should be obliged to explain, choose to turn a blind eye to these big boys, whereas if you or I tried the same schemes, they would be all over us like a rash.
As @Fiiish says, all the EU are doing is putting pressure on the national tax authorities to do their bloody jobs. How you can think that is any kind of bad thing, is quite beyond me. After all, have you not been one of those calling for or hoping for an EU State Aid investigation into the Olympic Stadium contract?
I tell you what. I fancy the Irish electorate won't be as sanguine as you. That is a fragile coalition government over there, and I reckon their electorate will tell them to collect the money and build some bloody hospitals with it.
I'd love the Irish populace to put the pressure on and get the money to be used in a beneficial way. But in the long run, this may mean they then lose the financial benefits from the US companies who may move elsewhere.
There is far too much dirt here for any of those involved to emerge well.
Bottom line, normal people will not be the winners.
However my argument was based upon the fact that I thought Ireland were charging Apple (and others) 12.5%.
I should have read the link from @PragueAddick more closely as I now see they are charging 1%, if not less.
Ireland should definitely be penalised for this ...why are Apple getting the fine not the government of Ireland? As the competition commissioner stated, "Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules".
I am not absolving Apple of blame but they took what they were offered ...surely the Irish government is more culpable.
How about making HMRC do its job properly?
Richard Murphy may not be everyone's cup of tea, but who can disagree with the thrust of this blogpost?
Anyone here got a personal "Customer Relationship Manager" at HMRC?.if so, you are probably rich enough to put in an offer for CAFC...
https://www.theguardian.com/world/2017/jul/25/netherlands-and-uk-are-biggest-channels-for-corporate-tax-avoidance?CMP=Share_iOSApp_Other
But oh, no, we are too busy taking back control of..well... something else, obviously.
Behind a paywall but think all can read the first two paras. A bit more
Launched almost three years ago, the commission’s investigation alleged that the US online retailer benefited from a sweetheart tax deal that granted it almost a decade of illegal state support from Luxembourg, the hub for its European operations.
A Financial Times analysis of Amazon’s Luxembourg accounts shows that over the next decade, the EU sites paid the partnership nearly €4bn in royalties for using Amazon’s name and know-how. In the same period, Amazon’s European operations reported a total profit of €11m on net turnover of about €60bn.
While Amazon sent about €1bn of those royalties back to the US, where they were taxed, the remaining nearly €3bn was not. A US tax court ruling in March has forced Amazon to restate its European figures and move some of that €3bn stateside to be taxed — a decision that will change how much Luxembourg will be required to recover.
I'll resist the obvious pro EU point, and of course I know it was Juncker as Luxembourg PM who signed this deal. Let's hope he suffers as a result.
The key point is that the EC has rumbled this particular fairy tale and is prepared to take action. To remind you, every time you buy in the UK from Amazon and it is delivered from one of their many huge UK fulfilment centres, you get an invoice from Luxembourg, perpetuating the fairy tale that that is the location where you did business with them. HMRC and UK Gov know perfectly well that this is a firy tale and do nothing about it. It is not even on the agenda at the Tory party conference, AFAIK.
It would NOT work like VAT.
It's probably used much more widely than we think....... calling Roland
1. If Amazon have to unwind the scheme, they are more likely to book sales in the UK and thus report profits there (and in other EU countries as appropriate).
2. In principle at least it would encourage HMG and HMRC to review what Amazon are up to with UK derived revenue and take steps to ensure they are reported and taxed correctly. In principle.
It also of course deters other smartasses from using the same Luxembourg loophole. Next stop, the Netherlands, hopefully, starting with Uber and then going on to the more complex Google one, which utilises both the Netherlands and Ireland.
What has the EU ever...oh, sod it!
Were you a remain voter then, I never knew
There is a solution for getting more taxes out of the big global corporates, you just block all loopholes by not having rules in the first place. You allow HMRC to decide the rate of tax companies should pay and what it is applied to - UK revenue/non-UK revenues/gross profit/net profit/ etc. HMRC can reduce tax obligation for non-UK corporate based on job creation benefits for the UK.
No HMRC decisions can be disputed in the Courts because there are no fixed rules to interpret.
Problem is uncertainty. Uncertainty is a key risk factored into corporate decisions, the UK would become unattractive as a trading base for overseas companies and would be an unattractive place to sell goods and services.
The alternative is to have a simple fixed tax that couldn't be avoided. The problem with a simple approach is that it cannot bear down fairly on different shapes of businesses - high or low overheads/cost of sales/turnover/capital resources/depreciation. Good businesses could fail and bad businesses could succeed purely because of the tax basis.
Just pointing out there is not a simple solution that any government can implement, a blunt solution that gets fair taxes out of the global giants will have far reaching unintended negative consequences.
I believe taxation is a clumsy means of re-distributing wealth, because most tax revenues are spent for political ends, little gets applied where it should best be directed. Far better to require a percentage of profits to be automatically paid as wages rather than be paid as tax, with the rest being paid as dividends. Give the money direct to employees to increase wages and economic activity, rather than pass to government to hand some of it back as Universal Credits to subsidise the low wage levels paid by employers. I don't see little value in chasing corporate tax revenues if this approach is used. Only the dividends paid by corporates need taxing, and there we need to be careful, as much of it supports small savers and pension funds.
There is only justification in corporates retaining significant profits if they are newly established businesses that need to recoup the original risk capital, and obtain a commensurate return for the risk. Once risk capital is recouped, the entrepreneurs obtain their reward by typically selling all or part of their interest and the companies become publicly owned. Once they are public companies, the dividends paid from profits are received, after tax, mostly by pension funds and financial institutions. The now superrich original entrepreneurs who retain some shares do not benefit to any greater extent than you or I who might be small savers/investors who indirectly hold the shares.
So profits are not a dirty word, and shouldn't be taxed out of existence, they just need to be paid out entirely as taxable dividends and with those dividends only available from what is left over after employees have had a fair share of the revenues in the form of wages.
These are the changes I will make when I run the country.
I've learnt a lot on this thread about it to be fair from the likes of yourself, prague, dippenhall and rob7lee, and understand it's a real clusterfuck, I just still can't get my head round it from an ethical point of view
And it might stop those c***s at HMRC fining upright citizens hundreds of pounds for sending their returns in a few days late while amazon skip off paying any tax at all.
The whole system is totally fucked.
For instance I work in insurance/reinsurance. Depending on many factors, but as an example take Hurricane's we might make or lose money. Last year we might have made $150m as there were none. This year we might lose $50m as theres been a few - don't think it would be right to tax a company that made $50m loss. Our turnover is near $1bn.
I'm sure theres 101 other types of business who for varying reasons each year could make or lose money.
Base erosion and profit shifting (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the inclusive framework at the OECD, over 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS.
As posted on this thread some years back(!) there are estimate that BEPS is costing up to 10% of corporation tax every year. That's could make a significant contribution to covering deficits and forgetting all about austerity.
The situation needs to be confronted and changed. At present western economies allow up to 95% of profits to be transferred out of the country of purchase due to royalty charges (invoices) based upon intelectual property. So that's 95% of a cup of coffee, an itune, an ebook or anything else. The Amazon case is not isolated.
Why 95%? It's a legacy number left over from the last century. How easily can that be changed / restricted? What is required to establish a common approach by the richest countries couples while stepping up the anticompetitive approach as seen in the cases against Apple, Facebook etc.
And this is important not just because of the numbers involved but because of the trends and where commerce will be in 2025
But some sort of turnover threshold takes small businesses out of the scope of this. And the turnover tax charged could be offset against a CT charge if and when incurred, so ups and downs would even out.