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Some thoughts on Panorama

May 15, 2012

Accountancy Age takes issue with last night’s Panorama, arguing that

there is a global marketplace for large businesses and, in parallel, a global marketplace has arisen for tax jurisdictions around the world.

The UK governments may not like this, but they can’t control it, only put out their best stall and package. Otherwise businesses leave the UK take tax revenue with them.

A “global marketplace for tax jurisidictions” doesn’t just “arise”, though, does it?  Tax jurisdictions aren’t natural phenomena.  If we just leave it to the “global marketplace” then what happens is that big business – the people with money, who can afford a quarter million for a “kitchen supper”, or who can afford to loan some of their staff on secondment to Ministers’ offices or to Government Departments – will argue for a race to the bottom.  We have to be nice to the multinationals because all the other countries are.

“We have to do it, because everyone else is doing it?” What are we, six?  “I have to stay up late, everyone else does.” “Well if everyone else jumped off a cliff, would you do that too?” Come on!  My grandma had that argument sussed in 1967!

Aggressive tax avoidance is legal but not acceptable: that’s the message we’re getting from some bits of the government.  The argument, of course, is whether we can recognise it.  What makes it “aggressive” and unacceptable?

I have my savings in an ISA – so I avoid paying tax on the interest.  That’s perfectly legal.  It’s also avoiding tax.  Is it aggressive?  Is it acceptable?  Obviously that’s fine – my grandma would have had no problem with that.

But say that I register a company, and then another one in Luxembourg.  I take my savings and put them into the Luxembourg bank account and then the Luxembourg company lends them to the UK company.  The UK company pays interest to the Luxembourg company and I claim a tax deduction for it.

Say what?

I still have the same amount of money, only now it’s spread about a bit and hey presto it’s wiping out all of the profits I get from, er, writing this blog.  Or whatever.

What would grandma say to that?

I think the image used by the Panorama programme, of a three card trick being played out with mobile phones, was brilliant.  Money moves magically around, and, like grandma faced with mobile phone technology, it feels as if we’re powerless to stop it.

But actually it was just the old three card trick.  Follow the lady, round and round she goes…

Panorama could have done a lot more to explain what Controlled Foreign Companies are and how they work.  But they couldn’t have found a better metaphor for it.  The three card shuffle, with a bit of shiny tech.

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