Tax avoidance – who, how and why?
Weekly we hear stories about how people are avoiding tax by using legal means and tax loopholes.
There is an entire industry around minimising tax for large companies and wealthy people. On the other side of the fence HMRC has teams of people trying to stop or outlaw such tax avoidance practices.
These days people in Scotland and Northern Ireland are calling for a lower corporation tax rate in their country. Nothing is likely to happen before the Scottish referendum on independence takes place. However two major concerns arise with having different rates in parts of the UK:
Brass-plating - this is where companies register themselves in the low tax country, but in fact bring precious-little in the way of jobs or investment to that country.
Tax avoidance - using the techniques described in a recent BBC radio programme, and many others, the companies moving to a part of the UK exploit tax rules and still end up paying very little UK tax
In early May 2013 HMRC announced it is stepping up efforts to tackle transfer pricing. This is the process where international countries adjust the price of goods and services they send from one country to another. Thus they raise expenses in the high tax country, keeping profits and tax low, and equally increase sales and profits in the low (or no) tax country. For example Bermuda has zero corporation tax. Where do you think most of Google's profits end up?
Many people, including the UK Public Accounts Committee, are agitated by the aggressive tax avoidance engaged in by many large companies, and most of the World's largest businesses. People feel that if the big companies paid more then individuals could pay a little less. Some other people (many employed by the big companies) are concerned that if the UK becomes less welcoming from a tax perspective then UK jobs will be lost and work will move to a more sympathetic country.
Lobbying organisations like UK Uncut continue to expose what they see is unfair tax policy and abuse of the system by some businesses. For example as regards Starbucks here.
The April 2013 BBC Radio 4 piece called 'Tax avoidance: The hidden cost' is an excellent expose of how Google, Starbucks and others minimise not only their UK corporation tax bills, but in fact their tax World-wide. It explains in fairly simple terms how money moves around the globe leaving very little tax in the countries it passes through. For example over 70% of the World's biggest companies use the Netherlands to reduce their tax bills. Hear how in the programme, link below.
The excellent BBC radio programme on tax avoidance is at www.tinyurl.com/taxavoidanceBBC
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.