Language, Timothy!
March 4, 2013Back to the Mail Online again today for the story about the top dozen UK companies that pay no tax. Serendipitously, there’s some thoughtful material on the same subject from Robert Maas in the last issue of Taxation (behind a paywall, sorry) where he asks “Are organisations really dodging tax, or are they just following the rules?”
This brings me back to the language of tax; Maas makes some reasonable points
- Amazon makes its UK sales through a Luxembourg subsidiary. It has warehousing in the UK, but under the 1968 Double Taxation agreement with Luxembourg a warehouse doesn’t constitute a “permanent establishment” that would make the sales from that warehouse taxable in the UK.
- Starbucks has its intellectual property in a Netherlands company (in other words the know-how of how to run a branch of Starbucks) and it franchises UK shops. So the profits made by an individual franchise would be payable by the franchisee in the UK, but would be decreased by the amount it pays to Holland for the know-how.
but his conclusion – “Most of the so-called avoidance schemes that are being publicly criticised are not avoidance at all” is a bit more difficult if you’re not a tax expert.
The fact is that the person on the Clapham omnibus – the tax muggle, if you will – doesn’t care about the complexity of tax legislation but applies the “it’s not fair” test. It doesn’t feel fair that I have spent £100 on books without leaving my chair and that a British postman has brought them right to my door, but because I bought them from Amazon instead of [insert name of non-Amazon book seller here. There must still be one somewhere, right?] then the profits the seller made aren’t taxed here but in Luxembourg.
Similarly it feels wrong if I’m sitting in Sheffield drinking a caramel macchiatto and eating my red velvet cake but somehow the profits from selling them to me get taxed in Holland.
But if we talk about tax avoidance in these terms it seems to me we’re generating heat without light. “It’s not the firms, it’s the system” yes, maybe – but where does that get us? The interesting thing to me is the government’s ambition to make the UK a “competitive” tax system, to show that it’s “open for business”. That’s where I can shrug and agree with Maas that it’s not necessarily a “fault” for a company to arrange its trade in a way that takes advantage of the “competitiveness” of the different tax regimes in different countries: the issue isn’t with the actions of the company but with the people who designed the system in which they operate.
Perhaps, though, the issue takes us back to the one which didn’t really get bottomed out in the PAC hearings – if the fault is in the way the government makes its tax legislation, then the whiff of something smelly comes from the involvement of the same big businesses that profit from “tax competitiveness” in designing the competing systems. That’s why we shouldn’t have a revolving door between industry and civil service, and why we should have records of meetings between Ministers and civil servants and industry representatives.
And, while we’re at it, why we ought to have the Small Firms Impact Test back in the list of things that must be included in the work of policy development, rather than archived at the back of the bus and replaced by some meaningless warm words.
tiintax 
But I think there signs at least some MPs get it. Look at Q301 from Ian Swales and his admission of guilt.