Author Topic: Starbucks roasted by PAC, Google asked searching questions and Amazon outmuscled  (Read 1210 times)

John Short

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PAC Hearings Nov 12 2012 - might be available on BBC I-Player - amusing at times but excruciating as well!

http://www.guardian.co.uk/politics/2012/nov/12/amazon-google-starbucks-tax-pac

“We pay all the tax we are required to pay” Google CEO UK Mark Britten
“We are not accusing you of being illegal.  We are accusing you of being immoral.” Mrs Hodge replied.

What is a Tax Code for? 

Discuss

Also to add to the debate
http://uk.news.yahoo.com/john-lewis-chief-makes-tax-plea-210919778.html
« Last Edit: November 14, 2012, 22:03:57 GMT by John Short »

harnett

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The politicians may well have been incredulous, but it's not as though we haven't known about these issues for quite some time.  Transfer pricing is old hat, as is the use of offshore shipping of profits.  If the tax code can't protect the exchequer from such behaviour then of course it is encouraged.  It will be interesting to see what happens next.  What is the legal basis for suddenly charging these companies millions or billions as the Grauniad suggests?  Immorality isn't a crime by law.

John Short

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I doubt it if there is any legal basis.  If they cannot come up with a solution to transfer pricing - what about a (modest) turnover tax on UK trading?  Where there are double taxation agreements it would not reduce their total tax payment but relate it to where the "profit" is generated.  Crude, and sins against a good tax code but a good tax code is about collecting tax that "should" be due!

petagny

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Why not get rid of corporation tax and collect more tax on dividends? What are the pros and cons?

John Short

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Burden of tax?  Tax on dividends are paid by individual shareholders - corporation tax by the company as an entity.  Impact on pensioners who rely on dividends?  May encourage retained earnings?  There are probably tomes written on this somewhere.

petagny

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But presumably dividends could be higher, offsetting the increased tax burden?

Reg

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I had that Vito Mirlees and his mate Jim Tanzi in my cab this evening. Said they'd never heard of the MPF board. Said they'd done the tomes, but had never made the bestseller lists.  We had a chat abaht getting codes/policy/research findings into twit. budget/text constraints, lots of larfs, but they left before we got beyond "expenditure taxes are really..."

harnett

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Well Polly Toynbee ratchets up the debate indicating how trusts manage to protect the money of the elderly and avoid inheritance tax etc.  What was interesting for me though, was the assertion that HMRC could refuse to accept these (Starbucks, Amazon et al) accounts!!!  And then John Lewis are complaining about an unfair playing field competing with Amazon - but why don't they just go ahead and copy Amazon's tactics - because they are more moral?  Less global?

Anyway - anybody out there know what it means if HMRC refuses accounts?  Surely Starbucks are bang to rights if they charge a 20% markup for doing nothing by their co. in Luxembourg or wherever.  Sting 'em for this for starters on the UK imports of coffee.

http://www.guardian.co.uk/commentisfree/2012/nov/15/britain-tax-havens-close-to-home-amazon


John Short

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Reg, it’s great to see you are still with us – I feared that you may have retired in one way or another. The tomes of the Mirlees/Tanzi twins are referenced in these pages so well done there in reminding us all, but one question for you. 
Did they give any clue as to why successive governments do not follow their advice in making tax rules simple and allowing all these loopholes that the fancy accountants exploit? 

A further question – do you take your break in a Caff or do you go to the ones that are being targeted for boycott?  If you do, that fella Harnett will increase the cost of your coffee as I can’t see a unilateral tariff increase being imposed on a single or few coffee importers as that is bad policy, and if it comes in from an EC member?  Well free trade and all that in a Common Market.   Oh, with all the rugby types in town, if you get one as a fare, see if you can pick up 10 tickets for the next Ireland – England game in February next.  We want to inject some excise tax into the Irish economy – the place where that Captain Boycott made his name so to speak.

« Last Edit: November 16, 2012, 17:33:20 GMT by John Short »

John Short

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Found the video!
http://www.parliamentlive.tv/Main/Player.aspx?meetingId=11764&st=15:23:30

Wonder if some PR types at a "Fulfilment Centre" advised them to wear poppies?

PAC 10 Google 10 Starbucks 0 Amazon sent off without scoring!
« Last Edit: November 16, 2012, 20:01:02 GMT by John Short »

John Short

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On a related area of tax avoidance just published by the NAO
http://www.nao.org.uk/publications/1213/tax_avoidance.aspx
« Last Edit: November 21, 2012, 11:25:27 GMT by Napodano »

John Short

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Given the pessimistic prognosis in the attached – what should be announced in the December 6th Statement? 
Addressing some of the issues raised in this forum would seem to be a good starting point but not in a knee jerk way.
“In next week’s Autumn Statement the Chancellor may have to abandon one of his fiscal targets – that debt should be falling in 2015–16. He may also need to announce yet more spending cuts or tax increases for the next parliament in order to continue to meet his other fiscal target. This is the headline conclusion of a new report published today by researchers at the Institute for Fiscal Studies. The analysis adjusts the Office for Budget Responsibility’s (OBR’s) March 2012 forecasts for the economy and the public finances in the light of new developments over the last few months. It takes account of the now weaker outlook for the UK economy (as implied by independent forecasters) and the disappointing trend in tax revenues seen over the last seven months.”
http://www.ifs.org.uk/pr/Autumn_Statement_2012
« Last Edit: November 26, 2012, 15:31:58 GMT by John Short »

John Short

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Interesting contribution by Richard Murphy a founder of the Tax Justice Network and director of Tax Research LLP: “The corporate tax debate is a Marmite issue: there’s no room for politicians to sit on the fence”.
http://www.taxresearch.org.uk/Blog/

John Short

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atseacliff

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Government response to invest in HRMC seems proportionate and sensible.  The main problem is lack of resources in HMCE rather than the regulations themselves.  PAC may seem like good theatre but I wouldn't go beyond improving the detailed segmental information in MNC financials - which; at least from my perspective would still be challenging due to transfer pricing.   

John Short

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I think the ability to challenge the "fairness" of the transfer pricing regime is at the heart of this.  As you say the investment in appropriate resources to do this is key (separate announcement from the  PAC report today).  It is also interesting that Starbucks is "unilaterally" reconsidering its transfer pricing so reduce its transfer to Holland - I suspect this is a response to the threat to its market share from the negative publicity.  Perhaps the morality that PAC Chair Margaret Hodge talks about may be filtering down - I doubt if the term exists in Tax Law/Statutes, but the market may work in that regard.  Remember Gerald Ratner!  Both Margaret Hodge and Danny Alexander (Sec. to Treasury) were interviewed on this morning’s Today Programme on BBC Radio 4 at about 08.10 which should be available on BBC Player.

atseacliff

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Interesting how this is panning out.  I took revenue law as a given when I trained as an accountant in the 1980's.  The balance between the poachers (in the accounting firms) and gamekeepers in HMRC was always a challenge but broadly they seemed evenly matched.  Now it would appear that the resources are heavily skewed in favour of the corporate giants.  Interesting too how the likes of Starbucks "are looking" at their transfer pricing policies....what will be the knock on effect in Holland for example?

Taxation always seemed to be more of a science than an art when I was a lad.   

petagny

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I agree with atseacliff on the need to bolster HMRC capacities.

Anecdotal I know, but a recent conversation with an accountant (ex HMRC) revealed the following:

- Swathes of older and more experienced inspectors chopped out (and now working for tax advisors!).
- Massive reduction in risk-based tax audits of individual clients (not seen as 'fair'!).
- Severing of direct relationship between an individual inspector and his/her case-load of clients (try talking to 'your' tax inspector nowadays!).
- No-blame culture introduced, so that everyone and no one is responsible for errors.

In the end, HMRC has great deal of discretion to challenge dodgy looking arrangements, but it can't exercise this discretion if its human capacities and organisational arrangements are not up to it.

John Short

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Starbucks  has announced it is now planning to pay more corporation tax than it is obliged to, amid the row over contributions from big foreign multi-national firms.

The company's UK Managing Director Kris Engskov said: "Having listened to customers and to the British public, Starbucks in the UK will be making changes which will result in the company paying higher corporation tax in the UK - above what is currently required by law.

"Specifically, in 2013 and 2014 Starbucks will not claim tax deductions for royalties or payments related to our intercompany charges."

A company statement continued: "In addition, he is announcing a commitment that Starbucks will propose to pay a significant amount of corporation tax in the UK during 2013 and 2014 regardless of whether our company is profitable during these years."

Surely this is Starbucks making an unrequited payment to this UK Exchequer as it cannot be for Corporation Tax - or are they saying we will calculate what we want to give you and ignore the tax compilation rules?  Or a misguided marketing ploy to pacify its customers - who will see it for what it is!
« Last Edit: December 06, 2012, 17:38:56 GMT by John Short »


John Short

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It appears that these voluntary contributions can be offset again future tax liabilities should they ever arise!

harnett

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http://www.guardian.co.uk/global-development/2012/dec/10/uk-aid-africa-tax-haven-mauritius

On the subject of avoiding taxation how about this!!!!!!

"More UK aid channelled via investment funds in tax haven of Mauritius

Extent of privatisation of aid budget and increased routing of aid through Mauritius revealed in War on Want report

The African island of Mauritius is known for its secrecy, negligible corporate tax rates, and for being a favoured conduit for wealthy individuals and multinationals wishing to avoid tax on African and Asian profits."

atseacliff

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I thought this might appeal ;D

http://www.blipfoto.com/entry/2544952


John Short

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The OECD has published a major new report on corporate taxation, entitled Addressing Base Erosion and Profit Shifting.
http://www.oecd.org/ctp/BEPSENG.pdf
See also commentary on
http://taxjustice.blogspot.co.uk/2013/02/oecd-report-on-corporate-taxation.html

Article in Guardian "Big UK tax avoiders will easily get round new government policy”

http://www.guardian.co.uk/commentisfree/2013/feb/15/uk-tax-avoiders-wont-stop-new-policy


See also posting of 31 January Charitable Donations
“Tax avoidance being discussed at the PAC today
http://www.parliamentlive.tv/Main/Player.aspx?meetingId=12458
« Last Edit: February 18, 2013, 08:56:57 GMT by Napodano »

John Short

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The Public Accounts Committee publishes its 29th Report of this Session which, on the basis of a Report by the Comptroller and Auditor General, evidence was taken from HM Revenues and Customs, Tax Trade, Future Capital Partners and Ingenious Media on marketed tax avoidance schemes.

Report: Tax avoidance: tackling marketed avoidance schemes (PDF)

http://www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/news/tax-avoidance-tackling-marketed-avoidance-schemes/

Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
“Promoters of ‘boutique’ tax avoidance schemes like the one brought to our attention by the case of Jimmy Carr, are running rings around HMRC.
"They create schemes which exploit loopholes in legislation or abuse available tax reliefs such as those intended to encourage investment in British films, and then sign up as many clients as possible, knowing that it will take time for HMRC to change the law and shut the scheme down.
"Their clients can then take advantage of this window of opportunity to make a lot of money at the expense of the taxpayer, while the promoter simply moves on to a new a scheme and repeats the process. It is a game of cat and mouse and HMRC is losing.
"It has allowed a system to evolve where the die are loaded in favour of the promoters of tax avoidance schemes. The complexity of tax law creates opportunities for avoidance, there are no penalties to stop people promoting these schemes, and HMRC is ineffective in challenging promoters who are deliberately obstructive or deliberately sell schemes they know do not work. Promoters pocket their fees whether their schemes work or not.
"There is also a lack of transparency that makes it very hard to find out who is involved in marketing or using these schemes. HMRC publicizes details of schemes that do not work but does not name the promoters or the clients. We have seen how public anger and consumer pressure can influence large companies, such as Starbucks, to behave more responsibly.
"HMRC should publically name and shame those who sell or use tax avoidance schemes in order to discourage such activity.
With at least £5 billion lost to tax avoidance each year, HMRC has got to get much more robust in its approach.
"The requirement that promoters give early notification to HMRC of new schemes has resulted in the swift closure of some. But the Department does not know how many promoters simply choose to ignore the requirement.
We are also alarmed to hear that promoters are getting off paying fines for not disclosing their schemes by pleading that, in the opinion of a QC, they have a ‘reasonable excuse’ for non-disclosure. HMRC is right to explore how to make it more difficult for this tactic to work.
"The number of cases HMRC takes to court is tiny compared to the overall caseload. It must make use of the additional resources it has been given to act much more urgently to investigate and close down new schemes and to bring more cases to court.
"Since our hearing, the Government has announced that it is consulting on draft rules designed to allow departments to ban tax-avoiding businesses from being awarded government contracts. This is a welcome move but we will want to monitor closely how any such rules are applied in practice.”

Margaret Hodge was speaking as the Committee published its 29th Report of this Session which, on the basis of evidence from HM Revenue & Customs, Tax Trade, Future Capital Partners and Ingenious Media, examined marketed tax avoidance schemes.
Tax avoidance
Tax avoidance—using tax law to gain a tax advantage not intended by Parliament—reduces the money available to fund public services and is completely unfair to the majority who pay the tax due. HM Revenue & Customs (HMRC) estimates that in 2010-11 the tax gap due to avoidance was £5 billion. HMRC further estimates that the present total tax at risk from avoidance over time is £10.2 billion.
There is a proliferation of contrived schemes which exploit loopholes in legislation and abuse available tax relief schemes. Promoters are currently winning what appears to be a game of cat and mouse with HMRC and deliberately taking advantage of the time lag between the launch of a scheme and the closure of the scheme by HMRC.
Promoters and providers sign up as many clients as possible before HMRC changes the law and shuts the scheme. They then move on to a new scheme and repeat the process. Far too much public money is lost through avoidance and HMRC needs a much more robust approach.
HMRC has allowed a system to evolve where the die are loaded in favour of the promoters of tax avoidance schemes. The complexity of tax law creates opportunities for avoidance, there is no effective deterrent to stop people from promoting avoidance schemes, and HMRC is ineffective in challenging promoters who obstruct its attempts to investigate.
Scheme creations
All too often Government introduces new policies through tax incentives to stimulate economic activity and the design of these policies become an opportunity for tax avoidance providers and promoters to create a new set of schemes. Promoters collect their fees even when the schemes are found not to deliver a tax advantage. Few schemes are covered by mis-selling regulations, even though people might be put off buying them if they fully understood the risks. We welcome HMRC’s consultation on applying the model of financial services mis-selling to tax avoidance.
Those who promote a tax avoidance scheme are required to notify HMRC of the scheme to comply with its disclosure regime. This has allowed HMRC to act quickly to close some schemes down. However, HMRC does not know how much avoidance is not disclosed but should be and has only issued 11 penalties for non-disclosure of a scheme.
A small number of promoters appear determined to avoid disclosure and refuse to engage with HMRC. It is alarming that some QCs’ opinions are being used by promoters as a “reasonable excuse” for non-disclosure which prevents HMRC from applying a penalty.
Measures used elsewhere
HMRC could learn from the variety of measures used in other counties to deter and tackle tax avoidance. In Australia, promoters have to get clearance for schemes before they introduce them. An advance ruling system of this type could deter contrived avoidance schemes and increase certainty in the tax system. Australia has also introduced powers to fine those who promote schemes that could not reasonably be expected to work or comply with the advance ruling system. We encourage HMRC to look seriously at whether these and other measures could be effective in the UK.
Government influence
Government needs to use its influence wherever possible to deter tax avoidance. HMRC needs to consider whether by naming and shaming those who promote tax avoidance schemes, it could harness public opinion and reduce the appetite of companies to promote or use avoidance schemes. Major banks, accountancy firms and leading lawyers all play their part in supporting and advising on tax avoidance schemes.
The Government should examine ways to combat this. Government can influence behaviour by refusing to do business with those who promote tax avoidance or fail to pay their fair share of tax. We welcome the announcement that HMRC and the Cabinet Office will be consulting on how Government should change its procurement rules to deter tax avoidance and evasion, and will watch the outcome closely.
HMRC
HMRC has a lot more work to do to successfully tackle tax avoidance. It needs to know how much it spends on anti-avoidance work and properly evaluate the effectiveness of its strategy. It needs to get a stronger grip on the large number of avoidance cases it is investigating and find a way to reduce them. The number of cases it litigates is tiny compared to the number of enquiries.
HMRC needs to build its capacity and capability to take on avoidance in the courts, especially as we heard from one company that in light of previous successes, having taken and won two cases in the courts, it makes sense for scheme users to litigate. HMRC also needs to investigate cases quickly to deter more people from using them and reduce the advantage to those who do.

« Last Edit: February 19, 2013, 10:31:50 GMT by Napodano »

John Short

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Latest PAC report on Tax avoidance.  From the discussions on the Today programme BBC Radio 4 around 06.15 some of the points re accountancy firms disputed vigorously, but desire for simplicity agreed though vested interest cited.
Quotes from Summary
"HM Revenue & Customs (HMRC) appears to be fighting a battle it cannot win in tackling
tax avoidance. Companies can devote considerable resource to ensure that they minimise
their tax liability. There is a large market for advising companies on how to take advantage
of international tax law, and on the tax implications of different global structures. The four
firms employ nearly 9,000 people and earn £2 billion from their tax work in the UK, and
earn around $25 billion from this work globally. HMRC has far fewer resources. In the area
of transfer pricing alone there are four times as many staff working for the four firms than
for HMRC.

We were pleased that the four firms agreed with us that international tax rules are out of
date and need to change to reflect the reality of modern business. Modern communications
mean companies need as little as a computer and a handful of staff to set up a place of
business in a tax haven. Under current tax rules, this can be enough to establish that they
can pay their tax there, rather than where the business activity takes place. This is unfair to
responsible companies based in the UK who do pay their fair share of tax. We welcome the
Government’s commitment to reforming international tax laws, but this will be a lengthy
process and, until it happens, we are concerned that companies will continue to find ways
to avoid paying tax where they actually do business.

We believe that simplicity is key to fighting tax avoidance. The four firms agreed with us
that tax law is too complex and a simpler system is in everybody’s interests. It is
disappointing that HM Treasury’s Office of Tax Simplification is working with fewer than
six full time staff and as a result has so far focused on abolishing unused tax reliefs, rather
than being able to take a more radical approach to simplifying tax law. Removing unused
reliefs may be good housekeeping, but it does little to tackle the problem of complexity and
does not prevent the continued abuse of some tax reliefs, such as those to encourage
investment in films or donations to charity. We intend to examine those tax reliefs that are
widely used and may be subject to abuse at a future hearing."

harnett

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Also on the today programme.....Interesting to note that HMRC is so short of staff that they employ consultants from large accountancy firms to assist in drafting regulations, who then go back to their firms and advise the multinationals on how best to be tax efficient - gamekeeper turned poacher!!!

petagny

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I think I heard the former head of HMRC describe this policy as part of a 'constructive engagement with stakeholders' or some such words. Seemed naive at the time...still does!

petagny

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The scale of the 'sweetheart' deals made between major corporate tax payers and HMRC is coming to light through a combination of whistle-blowing and submissions to the Public Accounts Committee:

http://www.guardian.co.uk/politics/2013/apr/29/sweetheart-tax-deals

Is it a pragmatic solution to cut deals with these big international companies and thus avoid protracted legal disputes or does the apparent unfairness have longer-term consequences by undermining the credibility of the system?

HMRC seem to have introduced a new concept, 'bespoke governance'! A euphemism for a not-so-level playing field (to be filed along with the term 'economical with the truth') or a practical response to the realities of extracting tax revenues from global companies?
« Last Edit: May 02, 2013, 14:18:34 GMT by petagny »

 

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