The politicians have called it “the Google Tax” ; they now intend to tax multinationals that operate in the United Kingdom who at present manage to avoid paying UK taxes by using interesting means. This Google tax is long overdue. I am not a lover of multinationals; they seem to scare governments and cower them. However, the most interesting thing about this issue is not that the multinationals avoid tax – every sane person and business would seek to keep its tax bill to the minimum – but the means by which they avoid paying tax,
Every tax evasion involves a trick and a deception. Every tax avoidance usually requires a fiction. In the case of multinationals operating in the UK it works like this: the company that operates is specially formed from its ultimate parent and is licenced or franchised to operate in the UK not by the ultimate parent but by another company also owned by its ultimate parent, The company receiving the royalty is located in a jurisdiction which has very much lower tax rates than the UK. Thus profits are siphoned from the UK to a low tax jurisdiction where they are barely taxed at all.
I have briefly described the essence of the fiction. Of course, it involves complicated documents and lots of separate bookkeeping and for decades tax authorities all over the world have accepted this kind of fiction as fact. To my simple way of thinking it is like a man saying that he has to buy the air he breathes from his lungs, which happen to be located in a low tax jurisdiction.
Interestingly the most favoured low tax jurisdiction is Luxembourg. That stalwart founding member of the European Union specialises in diverting money from where morally it should be taxed to its own borders where it will be taxed at very low rates. It is a shot to nothing for Luxembourg, a perpetual McGuffin that never runs out. Accordingly Luxembourg is probably the wealthiest state in the European Union and thus, being rich, is suitably honoured.