2024 UK politics - now with Labour in charge
Comments
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I feel like you're just demonstrating the issue with correctly (for want of a better word) taxing companies operating as multinationals.
Maybe a good principal is that the profit is taxed according to the location where the value is added, but I appreciate that can be a somewhat arbitrary delineation. So in the case of the foreign made widget, you might split the profits based on manufacturing v local marketing (if that makes sense).
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The point is that the imaginary widget maker makes a profit in the UK and is taxed on that profit. The profit made from selling widgets in Milan is taxed in the UK just as it would if it had posted them from Birmingham to Italian customers. It will also pay local employment taxes and business rates in Milan on top of those in the UK. I fail to see what the problem is beyond the Italian treasury looking enviously at revenue it could have if the business relocated to Milan.
1985 Mercian King of Mercia - work in progress (Hah! Who am I kidding?)
Pinnacle Monzonite
Part of the anti-growth coalition0 -
If it is making a loss it is not trading at arms length rates with its parent. An independent business would not continue on that basis. It's auditors should query its purpose and the tax authorities should challenge the transactions that are not at an arms length.
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Quite possibly. That said, there are plenty of businesses that barely keep their head above water without any need for international tax planning. Clearly some people think such arrangements are morally wrong in some way, but I'm not sure why.
1985 Mercian King of Mercia - work in progress (Hah! Who am I kidding?)
Pinnacle Monzonite
Part of the anti-growth coalition0 -
The point that a company makes losses is not evidence that it is cooking its books or 'transferring profits'. It could be a symptom of that but W&G has already pointed out some good commercial reasons why it might be the case.
Let's get a bit clearer on what you regard as 'transferring profits'. Pretty much any commercial or financial transaction between companies in the same group will 'transfer profit' as that transaction will have a cost which is paid by the buyer to the seller of those goods or services. You appear to be strongly implying that the Starbucks 'profit transfers' are either (a) fictitious or (b) priced at a non market rate so as to disadvantage the UK tax position.
If you want to make a credible case for Starbucks doing either of those things then you need to present some evidence of the above.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
They would have also had to collude with their external auditors over a period of years to get their accounts signed off. And also escaped the external analysis of the City types etc. Extremely unlikely.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
If you are going to quote sources like that, at least check out whether they are impartial.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
And to your point about corporation tax being designed before there were multinationals, do you really think that legislation has stood still for 50 years? What do you think is in the budget that comes out each year?
I have given you some good examples of the anti-avoidance regs that exist and you seem to have ignored them. Maybe tell us what part of those rules are ineffective and allow multinationals to get away with 'transferring profit' (DB definition, not mine).
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
A business that only has third party transactions is always trading at arms length rates, so this isn't an issue. They may not be profitable, but that's fine if there is a plan to be profitable in the future. If they are just loss making then the shareholders will start to ask questions and are unlikely to put more money in.
This is very different from profit shifting which is what you were highlighting in what you wrote.
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I believe there was a change to international corporate tax arrangements in 2021, which oddly coincides with Starbucks suddenly making a profit in the UK for the first time.......
And Stevo, looking from the outside, often the different subsidiary companies appear to have been created form shall we say, 'accounting purposes'
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Let's see your evidence for that.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
Quite. I think some people on here are confused about 'profit shifting'.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
Specifically which change?
Give me some examples of these shell companies?
All this vague insinuation gets you nowhere.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
If you read up about transfer pricing in tax, the point about profit being taxed where the value is added is already in the regs. I deal with this stuff week in week out. So your point is what?
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
So if they were previously doing wrong on taxes, why did HMRC take no action? They have full access to the returns and records and inquired into the UK tax position. I asked DB the same question and he declined to reply for some reason. Maybe you can have a go?
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
You know why. It's incredibly complicated to bring a transfer pricing case, so the company involved needs to be really taking the piss rather than just maximising the amount of profit they can shift without challenge.
I thought Starbucks did come to some sort of agreement with HMRC, so presumably there were some questions asked.
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Multinationals have been around since the foundation of the EIC in 1601. Corporation tax was introduced in 1965.
1985 Mercian King of Mercia - work in progress (Hah! Who am I kidding?)
Pinnacle Monzonite
Part of the anti-growth coalition0 -
As you surely are aware, there was a new International Tax Agreement in 2021 agreed by 135 jurisdictions:
https://www.weforum.org/agenda/2024/02/oecd-minimum-tax-rate/
The policy is aimed at ending the benefit of shielding multi-billion-dollar profits in tax havens.
So even the OECD say there's been a problem.
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So is this 15% profit per cup the same for every country, or an average?
And what measure of profit is it? Gross profit? Most likely very different profit before tax which is the starting point for the tax return.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
They investigated and did not follow up - certainly not in the courts. If they thought there was a case they would have pursued it, especially given the likely amounts at stake. HMRC are not shy about litigating.
While there is a range of acceptable interco pricing for given transactions, anything falling outside of that would have meant HMRC would act.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
That is the OECD Global minimum tax rate that I mentioned above, sometimes referred to as 'Pillar 2'. It was announced then but is only coming into force for accounting periods starting in 2024 so would not explain profit movements 3 years ago.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
And?
See my point above about the fact that the corporation tax regs have developed over the last 50+ years.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
I'm agreeing with you. I think the idea that multinationals are some novel invention that governments are still catching up with is a bit of a stretch.
1985 Mercian King of Mercia - work in progress (Hah! Who am I kidding?)
Pinnacle Monzonite
Part of the anti-growth coalition0 -
Ah got it. Wasn't sure the point you were making. Multinatiinals are definitely not novel and the law is definitely evolving quickly to deal with it. This view of the regs as being an open invitation for multinationals to move profit where they want is at least a quarter of a century out of date.
And the claims of false accounting are laughable.
"I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0 -
You ignore the fact that the likes of the OECD have clearly stated that profit shifting has been taking place.
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What do people think is wrong with moving profit from one country to another?
1985 Mercian King of Mercia - work in progress (Hah! Who am I kidding?)
Pinnacle Monzonite
Part of the anti-growth coalition0 -
It's tax avoidance and misrepresents the accounts so is open to challenge on many fronts.
Also, I can't think of any reason to include a company in Luxembourg in the corporate structure other than to avoid tax. Its existence is a pain as cash actually needs to flow through Luxembourg, so it delays international transfers.
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well if every business that could shift their profit from the UK were to do so, would that be a good thing?
From a shareholder pov, shifting to a lower tax regime is clearly a good thing.
From the public finances (and subsequent ability to provide services to the population) pov, it is clearly a bad thing.
It can also distort a market and competitiveness within those markets.
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Maybe "determining tax liability is a much more objective process than making moral judgements" would be a better description.
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There's definitely a lot of subjectivity involved in tax.
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