G7 - Deal being backed to make multi-nationals pay tax

[Gizmo]

An interesting - and welcome - development from the G7 summit, where the G7 nations have reached an agreement to have multinationals taxed in the country where they do business. 

Clearly devised as a way to help recovery from Covid-19 costs and effect on the economy, but could have implications for us all if it helps prevent another harmful era of austerity or hammering the next generation to pay for the recovery.

Another interesting aspect of the deal is that all countries agree not to drop corporation tax below 15% - so this is not about competition within the G7 but meaningful recovery.

I'll be honest, I didn't see a Tory government agreeing to what is essentially a tax avoidance prevention scheme.

Full article: https://www.bbc.co.uk/news/world-57368247

[Gizmo]

I know that off the books stuff goes on a lot, probably a whole under-economy in size. Wonder if those doing this can morally justify it whilst also complain about reductions in services or poor police numbers, for example. 

Still staggered how Sunak got the go ahead for something that the likes of Mogg and other tory MPs who indulge in Cayman Island style tax avoidance schemes, would surely bristle at? I'm guessing there's going to be a size limit so that HMRC only go after the whales here.

[Cade]

I'm sure there'll still be lots of loopholes for all those wee Crown Dependencies scattered around the globe.

No way in hell would a Tory chancellor agree to it otherwise.

[dtgj]

23 minutes ago, Cade said:

I'm sure there'll still be lots of loopholes for all those wee Crown Dependencies scattered around the globe.

No way in hell would a Tory chancellor agree to it otherwise.

 

There's only 3 Crown Dependencies and they're all close to the UK - Jersey, Guernsey and Isle of Man. Hardly 'scatteted around the globe'. 

 

I only know about Jersey but I understand it's 'zero-ten' corporation tax rules there will need to be scrapped under these proposals. 

[Cade]

I tend to lump all the Overseas Territories, Crown Dependencies and all other colonial assets under the same heading to save time.

 

The top 10 biggest enablers of global corporate tax abuse are(according to the Tax Justice Network campaign pressure group);
1 British Virgin Islands (British overseas territory)
2 Cayman Islands (British overseas territory)
3 Bermuda (British overseas territory)
4 Netherlands
5 Switzerland
6 Luxembourg
7 Hong Kong
8 Jersey (British crown dependency)
9 Singapore
10 United Arab Emirates

 

Also, it's hilarious that Nick Clegg is claiming that "Facebook has been pushing for global tax reform for some years" when at the same time avoiding as much tax as they can
Facebook UK paid £28m tax on revenues of £1.6bn in 2019
£28.5m paid on PROFITS of £1.04bn in 2020

 

Edited June 5, 2021 by Cade

[Ulysses]

8 minutes ago, Cade said:

I tend to lump all the Overseas Territories, Crown Dependencies and all other colonial assets under the same heading to save time.

 

The top 10 biggest enablers of global corporate tax abuse are(according to the Tax Justice Network campaign pressure group);
1 British Virgin Islands (British overseas territory)
2 Cayman Islands (British overseas territory)
3 Bermuda (British overseas territory)
4 Netherlands
5 Switzerland
6 Luxembourg
7 Hong Kong
8 Jersey (British crown dependency)
9 Singapore
10 United Arab Emirates

 

Also, it's hilarious that Nick Clegg is claiming that "Facebook has been pushing for global tax reform for some years" when at the same time avoiding as much tax as they can
Facebook UK paid £28m tax on revenues of £1.6bn in 2019
£28.5m paid on PROFITS of £1.04bn in 2020

 

 

If you stretch the list slightly you'll also see Ireland in 11th and the UK in 13th.  Half the EU can be found in the next few countries on the list.

 

Interesting that the Tax Justice Network isn't all that impressed with the G7's plans.

 

https://www.taxjustice.net/press/g7-take-big-step-to-recover-tax-but-just-for-themselves/

 

[husref musemic]

in the same week as this shocker it's very good news.

 

https://www.theguardian.com/world/2021/jun/03/microsoft-irish-subsidiary-paid-zero-corporate-tax-on-220bn-profit-last-year

[Mikey1874]

Avoidable if these companies had just paid a little more tax. Legal loopholes the biggest legacy of the tech companies. 

[Cade]

Individual governments could close all of their domestic tax loopholes at the stroke of a pen.

They choose not to.

 

The UK has one of the most complicated taxation systems on the planet, by design, so rich people can avoid paying tax.

 

 

Edited June 5, 2021 by Cade

[Ulysses]

3 hours ago, husref musemic said:

in the same week as this shocker it's very good news.

 

https://www.theguardian.com/world/2021/jun/03/microsoft-irish-subsidiary-paid-zero-corporate-tax-on-220bn-profit-last-year

 

It is.  My concern is that it won't make as much of a difference as people think it will, because it's not all about the headline rate of tax.  Bear in mind that the Netherlands has twice the rate of CT that Ireland has, but is regarded as a more "friendly" tax environment for multinationals.

 

That said, it's a start.  Countries can't afford to be too holier-than-thou about CT rates and loopholes unless the United States is getting serious about tax. It looks as if the Biden administration is being serious, but let's see how it plays out.

[hughesie27]

How do they define "Where they do business"? Isn't that the whole argument? The business is done in the tax haven, regardless of where the customers come from.

[Cade]

Changing the definition of where services are performed.

If you're using Facebook in Embra then Facebook has provided the service in Embra, not from the Cayman islands or from wherever their servers are located.

That's how they'll do it.

Edited June 5, 2021 by Cade

[A Boy Named Crow]

2 hours ago, hughesie27 said:

How do they define "Where they do business"? Isn't that the whole argument? The business is done in the tax haven, regardless of where the customers come from.

It's way more complicated than that. Let's take the example of one of the mobile operators. Their customers were largely in the UK, Germany and Ireland. 

 

BUT they also owned a tiny phone company on the Usle of Mann. They were able to take their revenues from the high taxation places, and spend them on "professional services" delivered by the Manx company. 

 

Suddenly a big lump of their profits are in the Isle of Mann, not the UK, Ireland or Germany, because of these 'professional services". It's slippery as!

 

In the real world, the Manx division was doing bugger all, it was a dodge, pure and simple. Fortunately,  the Spanish parent company actually prides itself on being a "good corporate citizen", last I heard the dodge was being shut down. That's how it's done though. 

Edited June 6, 2021 by A Boy Named Crow

[Unknown user]

50 minutes ago, A Boy Named Crow said:

It's way more complicated than that. Let's take the example of one of the mobile operators. Their customers were largely in the UK, Germany and Ireland. 

 

BUT they also owned a tiny phone company on the Usle of Mann. They were able to take their revenues from the high taxation places, and spend them on "professional services" delivered by the Manx company. 

 

Suddenly a big lump of their profits are in the Isle of Mann, not the UK, Ireland or Germany, because of these 'professional services". It's slippery as!

 

In the real world, the Manx division was doing bugger all, it was a dodge, pure and simple. Fortunately,  the Spanish parent company actually prides itself on being a "good corporate citizen", last I heard the dodge was being shut down. That's how it's done though. 

Yep, friend of mine worked at Starbuck's HQ in Amsterdam a few years ago, they were up to all sorts. Income was taxed less in Holland than the UK, so the UK company didn't technically make any money - it was all spent on buying beans and naming rights etc from the dutch Starbuck's. They in turn funnelled some profits to offshore tax havens (IIRC) as allowed by Dutch law. It's all very convoluted and vague and the end result is that Starbuck's pretend to be raging at their UK operation for not making any money, while promoting the guys at the top of the UK operation.

I don't know what they're up to these days but I doubt very much they've given up on the concept of avoiding tax wherever possible.

[Greenbank2]

This is smoke and mirrors. Tax can only be applied to PROFIT declared within the jurisdiction. Companies will simply make sure that they do not make a profit by cross-charging between international subsidiaries (like Starbucks do by charging a royalty). Profit will eventually be recognised in low-tax havens.

[TheOak88]

I am a bit sceptical of how all this will work in practice, but at the very least it is good to see the top economies discussing it and at least trying to do something about it. It seems like these major corporations / tech companies have been getting away with this for the past 20 years and nobody in power wants to even discuss taking them to task over it. 

[Cade]

Starbucks are a prime example.

They have one guy in an office on a wee island that "Owns" all the Starbucks branding.

This company then charges royalties for every Starbucks franchise to use their branding.

And wouldn't you just believe it, the royalties just so happen to equal their profits every year, so they pay no corp tax.

Isn't that amazing?

 

They do the exact same thing with their coffee beans.

One guy in a wee office on a tax haven island buys all the beans then "sells" them to every Starbucks franchise, also for a price that just so happens to wipe out their profits.

 

See if Dave the builder down the road tried that by having his company branding owned by his wife, they'd end up in the jail for fraud in the blink of an eye but multinationals get a free pass.

 

Also see: celebrities forming a company of just them then renting themselves out as services to other companies so they only pay corp tax and not income tax.

Lorraine Kelly was doing this and got away with it because that's legal. Most TV presenters do the same. Even newsreaders are at it.

 

Again, if the general public tried this they'd end up in the jail. Just brand yourself as a limited company providing a service rather than being an employee. See how far you get.

Edited June 6, 2021 by Cade

[TheOak88]

3 hours ago, Cade said:

Starbucks are a prime example.

They have one guy in an office on a wee island that "Owns" all the Starbucks branding.

This company then charges royalties for every Starbucks franchise to use their branding.

And wouldn't you just believe it, the royalties just so happen to equal their profits every year, so they pay no corp tax.

Isn't that amazing?

 

They do the exact same thing with their coffee beans.

One guy in a wee office on a tax haven island buys all the beans then "sells" them to every Starbucks franchise, also for a price that just so happens to wipe out their profits.

 

See if Dave the builder down the road tried that by having his company branding owned by his wife, they'd end up in the jail for fraud in the blink of an eye but multinationals get a free pass.

 

Also see: celebrities forming a company of just them then renting themselves out as services to other companies so they only pay corp tax and not income tax.

Lorraine Kelly was doing this and got away with it because that's legal. Most TV presenters do the same. Even newsreaders are at it.

 

Again, if the general public tried this they'd end up in the jail. Just brand yourself as a limited company providing a service rather than being an employee. See how far you get.

 

Isn’t that basically exactly what tons of people in Edinburgh were doing for the past decade as “financial services contractors”. Forming a Ltd company and then getting HSBC or whoever to hire them so HSBC does not have to pay them sick leave, pension conts etc and the contractor can avoid paying income tax and pay corp tax instead?

[Cade]

1 hour ago, TheOak88 said:

 

Isn’t that basically exactly what tons of people in Edinburgh were doing for the past decade as “financial services contractors”. Forming a Ltd company and then getting HSBC or whoever to hire them so HSBC does not have to pay them sick leave, pension conts etc and the contractor can avoid paying income tax and pay corp tax instead?

Correct

 

 

[The Fonz]

1 hour ago, TheOak88 said:

 

Isn’t that basically exactly what tons of people in Edinburgh were doing for the past decade as “financial services contractors”. Forming a Ltd company and then getting HSBC or whoever to hire them so HSBC does not have to pay them sick leave, pension conts etc and the contractor can avoid paying income tax and pay corp tax instead?

IR35 was brought in to stop that I believe and under the new ruling a lot of those you mentioned would be classed as employees and pay tax accordingly. 

 

No idea on whether or not it has been effective, but it was designed to stop the kind of situation you describe. 

[husref musemic]

20 minutes ago, Cade said:

Correct

 

 

incorrect. it's actually quite similar (see the attached link) & nowt like funneling via Ireland/NL paying zero tax.

 

https://www.contractorcalculator.co.uk/comparing_taxes_contractors_versus_employees.aspx

[husref musemic]

1 hour ago, The Fonz said:

IR35 was brought in to stop that I believe and under the new ruling a lot of those you mentioned would be classed as employees and pay tax accordingly. 

 

No idea on whether or not it has been effective, but it was designed to stop the kind of situation you describe. 

for workers providing properly defined temporary services IR35 does not apply. This  protects the worker as well as the tax man.

 

unfortunately the legislation is a dog's breakfast.

[Diadora Van Basten]

What annoys me is as an employee if I get a bonus I pay 20% Corporation Tax, 11% employee Nic and 12.8% employer Nic which is just really money my company can’t pay me.

 

If my boss gets a bonus he calls it a dividend and pays 7.5% Tax.

 

This has been going on for over 20 years now there are various books on it and HMRC do nothing to address it.

 

The only justification I can see is that they want the rich to get richer and the plebs to pay for it.

[husref musemic]

12 hours ago, Diadora Van Basten said:

What annoys me is as an employee if I get a bonus I pay 20% Corporation Tax, 11% employee Nic and 12.8% employer Nic which is just really money my company can’t pay me.

 

If my boss gets a bonus he calls it a dividend and pays 7.5% Tax.

 

This has been going on for over 20 years now there are various books on it and HMRC do nothing to address it.

 

The only justification I can see is that they want the rich to get richer and the plebs to pay for it.

A dividend is a distribution of company profits (if you've made any) & only goes to the owners. otherwise it's a loan you have to pay back with interest.

 

Employee bonuses are something different entirely paid whether there's profit or not. Also, you don't pay corporation tax on bonuses.

 

 

[Governor Tarkin]

On 05/06/2021 at 17:07, jonesy said:

About time all loopholes for tax avoidance were tightened up.

 

[husref musemic]

1 hour ago, Governor Tarkin said:

 

howzabout the cash in hand folks : barbers, taxis, take aways, workmen etc.

 

loveable rogues or  parasites ?

[Governor Tarkin]

32 minutes ago, husref musemic said:

howzabout the cash in hand folks : barbers, taxis, take aways, workmen etc.

 

loveable rogues or  parasites ?

 

Bit of both.

 

9 minutes ago, jonesy said:

(and because I can't afford an accountant to look for tax avoidance schemes)

 

Neither can I tbh.

 

[Cade]

If you closed all the loopholes, then you could LOWER the tax rates across the board.

 

The wee man has to pay more because the big boys won't.

 

[Diadora Van Basten]

4 hours ago, husref musemic said:

A dividend is a distribution of company profits (if you've made any) & only goes to the owners. otherwise it's a loan you have to pay back with interest.

 

Employee bonuses are something different entirely paid whether there's profit or not. Also, you don't pay corporation tax on bonuses.

 

 

In small owner managed business it is common for owners to pay a small wage and large dividends to minimise the tax they pay so the comparison stands.

 

If the basic rate of Tax on Dividends was put up to  20% and the higher rate up to 40% then owner managers would stop taking dividends and increase their salary to avoid Corporation Tax.

 

If we really want a more equal society similar to what exists in Scandinavia we cannot continue to turn a blind eye to unfairness in the tax system.

[husref musemic]

27 minutes ago, Diadora Van Basten said:

In small owner managed business it is common for owners to pay a small wage and large dividends to minimise the tax they pay so the comparison stands.

 

If the basic rate of Tax on Dividends was put up to  20% and the higher rate up to 40% then owner managers would stop taking dividends and increase their salary to avoid Corporation Tax.

 

If we really want a more equal society similar to what exists in Scandinavia we cannot continue to turn a blind eye to unfairness in the tax system.

i posted this earlier, the difference is negligible.

 

https://www.contractorcalculator.co.uk/comparing_taxes_contractors_versus_employees.aspx

 

the gig economy paying another % or two isn't going to change anything. 

 

it's the big co's avoidance that will change things. not only for tax but for fair competition business to business.

e.g. Cafe Nero hasn't paid corporation tax for 14 years !

 

[Diadora Van Basten]

16 minutes ago, husref musemic said:

i posted this earlier, the difference is negligible.

 

https://www.contractorcalculator.co.uk/comparing_taxes_contractors_versus_employees.aspx

 

the gig economy paying another % or two isn't going to change anything. 

 

it's the big co's avoidance that will change things. not only for tax but for fair competition business to business.

e.g. Cafe Nero hasn't paid corporation tax for 14 years !

 

The comparison used in that article is flawed. It does not take into account both employee and employer National insurance.

 

So the unfairness in the £14.5k to £50k is significantly higher than mentioned in the article. 
 

In my opinion it sends the wrong signals that the Government and HMRC are comfortable with unfairness in the tax system whether it is between contractors and employees or between National and international companies.

 

As a country you either believe in fairness such as Scandinavia or you don’t such as UK, US etc.

 

To me the Scandinavian model of equality is what Scotland should be aiming for.

[husref musemic]

22 minutes ago, Diadora Van Basten said:

The comparison used in that article is flawed. It does not take into account both employee and employer National insurance.

 

So the unfairness in the £14.5k to £50k is significantly higher than mentioned in the article. 
 

In my opinion it sends the wrong signals that the Government and HMRC are comfortable with unfairness in the tax system whether it is between contractors and employees or between National and international companies.

 

As a country you either believe in fairness such as Scandinavia or you don’t such as UK, US etc.

 

To me the Scandinavian model of equality is what Scotland should be aiming for.

it does though, "The employee is now paying basic rate tax at 20%, and employee’s NI at 12%, resulting in a marginal tax rate of 32%"

 

employers NI is not useful to compare tax of a temp Vs staffy. if you were to throw in employer costs you'd need to include pensions, bonuses, sick pay, redundancy, holidays.

 

[Diadora Van Basten]

1 minute ago, husref musemic said:

it does though, "The employee is now paying basic rate tax at 20%, and employee’s NI at 12%, resulting in a marginal tax rate of 32%"

 

employers NI is not useful to compare tax of a temp Vs staffy. if you were to throw in employer costs you'd need to include pensions, bonuses, sick pay, redundancy, holidays.

 

I don’t agree with that at all. I think if you are comparing like for like you have to include employer National insurance that is just money that your employer cannot pay you and it’s very expensive.

 

I should probably include fairness between earned income and unearned income to my list.

 

In the past the rationale was that unearned income had already been taxed once however the abuse of dividends by owner managed business means this is no longer the case.

[jambo89]

On 06/06/2021 at 16:59, TheOak88 said:

 

Isn’t that basically exactly what tons of people in Edinburgh were doing for the past decade as “financial services contractors”. Forming a Ltd company and then getting HSBC or whoever to hire them so HSBC does not have to pay them sick leave, pension conts etc and the contractor can avoid paying income tax and pay corp tax instead?

A contractor still pays income tax though as well as corporation tax. It used to be that you wouldn’t pay any income tax on the first £20,000 of dividends and a lower rate on anything above that, but the “tax allowance” has reduced significantly.

 

23 hours ago, The Fonz said:

IR35 was brought in to stop that I believe and under the new ruling a lot of those you mentioned would be classed as employees and pay tax accordingly. 

 

No idea on whether or not it has been effective, but it was designed to stop the kind of situation you describe. 

It’s been a bit of a nightmare for me personally as a contractor. I used to dot abut for a number of companies each year, project to project. I would be classed as “outside” IR35 however, there would’ve been a few people I know who wouldn’t be. They would be a contractor / ltd company but only worked for the same company project after project. This is what IR35 was set up for, however what has happened, is that he companies are now no longer hiring contractors full stop (not good news for me). It means that I’ve been offered plenty of zero hours contracts, which is to say, I have the same rights as before i.e. no holiday pay, no sick pay, no workers rights, but much worse pay.
 

 

4 hours ago, Diadora Van Basten said:

In small owner managed business it is common for owners to pay a small wage and large dividends to minimise the tax they pay so the comparison stands.

 

If the basic rate of Tax on Dividends was put up to  20% and the higher rate up to 40% then owner managers would stop taking dividends and increase their salary to avoid Corporation Tax.

 

If we really want a more equal society similar to what exists in Scandinavia we cannot continue to turn a blind eye to unfairness in the tax system.

 

You sound a wee bit bitter. Perhaps your bitterness should be directed towards the big firms, instead of the little man (small business owner) who only pays tax on £45,000 instead of £50,00

[Diadora Van Basten]

1 hour ago, jambo89 said:

You sound a wee bit bitter. Perhaps your bitterness should be directed towards the big firms, instead of the little man (small business owner) who only pays tax on £45,000 instead of £50,00

You may think I am bitter but imagine the squeal from the Spivs if they levelled the playing field by putting dividends up to what they should be 20% for basic rate taxpayers and 40% higher rate taxpayers.

 

I think we need a fair tax system for all, it is possible it’s already being done just now in the Scandinavian countries. 

[Gizmo]

"“There is an assumption by a number of countries that there would be an exception for financial services".

Bunch of crooked twats. To think I was actually going to give a Tory party some praise for doing the right thing once in their corrupt existence!

https://www.theguardian.com/business/2021/jun/09/uk-city-of-london-exempt-g7-tax-plan-chancellor-financial-services-global-corporation?utm_term=Autofeed&CMP=twt_gu&utm_medium&utm_source=Twitter#Echobox=1623238580

[Cade]

Also exempt would be companies with low margins, so expect all the big boys to "invest" hundreds of millions into projects and count that as an expense to lower their margins.

[Gizmo]

3 hours ago, Cade said:

Also exempt would be companies with low margins, so expect all the big boys to "invest" hundreds of millions into projects and count that as an expense to lower their margins.

It's just a veneer of respectibility this isn't it? Of course, when this doesn't return decent tax into the exchequer's coffers, we'll all no doubt see tax freezes at best and more stripped public services to pay for all the borrowing during covid. Which I get to a degree but when the banks needed bailing out...