The Artful (tax) Dodgers!

For some time the financial pages have been running shock-horror accounts of the tax affairs of large international companies, in particular Starbucks, Microsoft  and Amazon.

 

The bottom line is that they don’t pay any, at least in the case of Starbucks.

 

I am one of the few people who has never entered one of their places, but I understand that they sell very expensive cups of what they call ’coffee’, although people tell me that this is this gets a bit close to the boundaries of the trades description laws.

 

So how much tax does this very successful company pay in the UK?

 

Nothing. Zilch. Naff-all!

 

Why do they avoid tax? Because they can. They are doing nothing illegal.

 

How? By not making any UK profit.

 

One of their spin doctors was being interviewed on TV news by an anchor who didn’t know her subject. He spent his time successfully throwing dust in her eyes, explaining how they do in fact pay VAT, NI and other stuff.

 

But this is how it really works.

 

The UK presence is set up as an English company, a separate legal persona. The US company then charges a ‘licence fee’ for the use of the Starbucks brand. What they don’t tell you is that the fee is set at a level that is the equivalent of the profit before tax. So no corporation tax is payable.

 

Trebles all round.

 

It’s not just these three firms. Most very large companies have ‘tax efficient vehicles’. News International is registered in Delaware, a notably tax-friendly location. That’s how it writes off the huge losses on The Times. 90% have such off-shore vehicles. It is relatively simple. You are trading in a foreign country through a subsidiary. You have another subsidiary in a tax haven. This lends money to your foreign company, which amount coincides with the profit. When the loan is redeemed there is no taxable profit to be seen.

 

The two biggest tax havens? No, not the BVA, or Luxembourg or Switzerland, but the City and the US.

 

Is there a solution?

 

An intriguing suggestion is to abolish corporation tax entirely and replace it with a dividend tax.

 

Whether this has legs I have no idea, but I will keep tabs on it!