tiintax

While I’m on the subject,  let’s look at what the Government actually told us about the Controlled Foreign Companies “reform” that Panorama mentioned.

You’ll have noticed this blog is called TIINtax – so let’s look at the TIIN, the “Tax Information and Impact Note” published with the Controlled Foreign Companies proposals.

First of all there were some “interim improvements”. When they were announced they were supposed to reduce the tax received in the UK by about £50 million and then year on year “the impact on receipts is expected to be in the low £10 millions.” Then the TIIN was revised to clarify that we’re giving away tax of around £25 million a year – enough to pay for, what, an extra couple of thousand nurses?

And now we have CFC “full reform”. The TIIN for that says quite openly that

A controlled foreign company is an overseas company controlled by United Kingdom residents which pays less than three quarters of the tax which it would have paid on its income had it been resident in the UK

Yes, folks, we’re looking at a special tax regime that applies to companies that are owned in the UK but paying less tax than they would have done if they’d been operating in the UK. And…

No tax will be due in respect of a CFC if the company satisfies any one of the statutory exemptions or exclusions.

Yes, what we mean by “reform” of the special rules that apply to these companies is… that we’ll invent some nice simple rules that keep them out of UK tax altogether. There ought to be a “ka-ching!” noise that you can insert into a website for moments like that.

Look at the top line of the table of impacts in the TIIN. This is how much tax we are giving away (all right, how much less tax will be due under these rules than if we didn’t “reform” them).

• 2013-14       -175 million
• 2014-15       -450 million
• 2015-16       -690 million
• 2016-17       -805 million

I don’t have the software to draw that as a graph in a blog post but imagine it – and, in your mind’s eye, while you’re following the numbers upwards, what do you think we’ll be giving away (sorry, “reforming”) in 2018? 2019?

As Graham Black, President of the ARC Union, said on Panorama: it’s like legalising murder and then saying your crime figures have fallen!

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.