Avoiding Tax Avoidance

Tax is a taxing subject and designing fair taxes is problematical. There is plenty of tax avoidance around, but what is tax avoidance? A person who gives a sum of money to his or her child will hope to avoid Inheritance tax, if they survive seven years. Opening an ISA account avoids some income tax. Donating to a charity avoids some income tax in many circumstances. Tax avoidance is simply arranging your affairs to minimise tax liability within the law. Some claim that a taxpayer should act within the spirit of the law, but I find it hard to understand the spirit of the law as a general principle. What seems to me to be obvious is that tax should be fair.

Ordinary people have little chance of lawfully avoiding tax, and any tax they may avoid does not really amount to more than the proverbial hill of beans. The big tax avoiders are the multinational corporations.

They use some ways of avoiding tax that sound morally questionable. For example, large companies often arrange their affairs so as to pay small amounts of tax in a low tax jurisdiction, like Luxembourg, (that stalwart of the European Union)even though they earn large amounts of revenue in many high tax jurisdictions. Digital companies, like Apple, Facebook and Google have great expertise in doing this. Trading companies like Amazon and Starbucks also have expertise. For example, Google will pay £49.3 million in Corporation Tax to the UK government this year on a profit of £200 million, even though the value of its UK sales was nearly £6 billion. Many regard this state of affairs as unfair, and if taxes are to be imposed all taxpayers must feel that the tax system is fair.

In the UK Amazon records profits of just £34.4 million and paid £11.9 million in tax. It seems that Amazon does not pay all of its UK staff a living wage. Many of these staff will have their income from Amazon supplement by benefits collected from taxes paid by UK taxpayers, who in effect are subsiding Amazon through the benefits system. That does not sound fair.

The solution is to avoid the tax avoidance on these large multinational companies by imposing a digital tax and a turnover tax. If the value of Google’s UK presence only shows a profit of £200 million then there must be something wrong in the way that profit is defined for tax purposes, and if the definition of profit cannot be redefined without causing all kinds of adverse consequences then it is the duty of the government to look for other ways of collecting revenue, and the most obvious way is by imposing a turnover tax and a digital tax. If the government cannot end tax avoidance it should impose different taxes which avoid tax avoidance.

Economic Growth Coffee and Taxes

Germany has announced that it expects its economic growth next year to be very small; it will probably be at the same level as that of the United Kingdom. These are difficult times and although economic growth is one measure of difficulty, it is not the only measure. Much depends on what the growth is and which sector is affected.

Some economic growth is merely the adoption of a new fashion or a new technology. When I first travelled to the United States it was impossible to get a decent cup of coffee anywhere. Coffee was served as merely a slightly flavoured and weakly coloured hot water. It was something that you had to accept and understand that this weak brew was how the Americans liked their coffee.

Later the concept of what Americans called “gourmet” coffee” (proper coffee to Europeans) caught on and the fashion grew.

Chains of aggressively marketed coffee shops grew up, led by Starbucks, out of Seattle. They carried out their business aggressively, swallowing competition by securing the best sites and using their wealth to market their products. They drove out of business many small family run coffee shops, so that the economic growth that arose as a result of the gourmet coffee shop chains was to a large extent illusory, because it came at the cost of economic recession caused by the small family run businesses being closed by the competition. Having grown a successful business Starbucks franchised coffee shops and ensured that they arranged their affair using devices such as transfer pricing and royalty payments to their own associated companies located in tax havens to avoid paying corporation tax in places like the United Kingdom.

That made the UK branch of Starbucks unprofitable, so that the profits were made in places that had very low rates of tax.

We were told that despite billions of turnover in the United Kingdom Starbucks did not pay any corporation tax, and the folk of the United Kingdom thought this unfair and improper. They started to boycott Starbucks and Starbucks as a result saw that they were losing business. Starbucks announced that they would voluntarily pay small amounts of corporation tax, even though they were not liable for it. Continue reading

Odd Things – Tax Paid by Giant Corporations

Starbucks, Google, Facebook, Vodaphone, Barclays and other multinationals pay no or very little corporation tax on the profits of their enterprises in the United Kingdom. This is because they do not make profits in the United Kingdom, for corporation tax is paid on the profits of corporations. Nevertheless they turnover billions of pounds in the United Kingdom but make technical losses here and therefore have no corporation tax liabilities. Continue reading