THE END OF TAX

The End of Tax - Except For You & Me

 

The jeweller Mappin & Webb has joined the global giants running rings round HMRC to slash their bills. Are taxes only for ‘little people’ ???? 

Tax paid by average UK worker: £5,393

It was the 17th-century French minister of finance Jean-Baptiste Colbert who said the art of taxation consisted of plucking the goose to obtain the largest possible number of feathers with the least possible amount of hissing.
A letter from HM Revenue & Customs that has either just arrived or is about to arrive on your doormat might make you want to hiss. “This is your annual tax summary,” it begins.
About 23m such letters are being sent to people, detailing on a simple, double-sided sheet of A4 exactly how much tax each of us is paying every year and how our money has been spent.
In one example, a Mrs Collins earning £50,000, roughly double the average annual full-time salary, is shown to have paid £9,627 in income tax and national insurance of £4,231, a total of £13,858. That comes to about £38 a day, including weekends. Not bad for the taxman, eh? Even better for him is that this summary does not include the many “indirect” taxes that Collins also pays, from the stamp duty on her new home to VAT on a whole load of items, although not this newspaper. 

So it is a little galling that the roll call of big businesses whose attitude to their own tax affairs may euphemistically be described as fluid keeps on getting longer.
Cadbury’s owner, Mondelez International, did not pay corporation tax in Britain last year on more than £2bn in revenues. It is anybody’s guess how the 19th-century Quaker founder of the chocolate business — a pin-up for ethical capitalism for his altruistic treatment of workers — would have felt about the new owner’s moral compass on tax. 

 Tax paid by Cadbury UK: Nil

Then there is the jeweller Mappin & Webb, which has a royal warrant and has not paid any tax in the past five years on more than £66m of profits.
Cadbury and Mappin & Webb join a growing roster of companies running rings around the taxman. From Starbucks and McDonald’s to technology giants such as Amazon, Google, Apple and Facebook, aggressive tax avoidance has become de rigueur for profit-hungry multinationals.

What is going on? Are taxes only for the “little people” as Leona Helmsley, the New York billionaire, once claimed?
James Daley, founder of the consumer champion Fairer Finance, said: “There is a contract between every person, every business and the government.
“As long as we can see that the others are paying their part, then we feel we are part of a fair system in which we are happy to take part. But if you see that sections of society are getting away without paying their taxes, it feels unfair — and then the system starts to break down.” 
This is not just an issue for ordinary taxpayers. It pitches business against business. On one side are the hundreds of thousands of small- and medium-sized firms who dutifully pay taxes, including corporation tax, business rates, employer national insurance contributions and VAT. Their situation is about to become more difficult. In his autumn statement the chancellor announced plans to make smaller firms and the self- employed file their tax returns four times a year.
On the other side are the multinationals who, increasingly, have been allowed by governments, including successive British governments, to choose how much tax they pay, and where they pay it.

On the other side are the multinationals who, increasingly, have been allowed by governments, including successive British governments, to choose how much tax they pay, and where they pay it. On a cold January morning nearly six years ago, workers at a historic chocolate factory in the Midlands gathered for a peaceful protest. Outside the plant in Bournville, Cadbury employees chanted and waved placards. One had a simple, stark message: “Kraft — go to hell”.
 
The American processed cheese maker Kraft, now called Mondelez, had just agreed an £11.5bn takeover of Cadbury. Staff feared hundreds of jobs would be slashed to help pay for the deal, and that the moral and paternalistic ethos of their founder, John Cadbury, would be lost.
The Quaker businessman started the company in 1824, hoping to wean the working classes off alcohol with chocolate drinks. Down the years, social purpose counted for more than mere profit. In 1879, Cadbury established its model village of Bournville in rural surroundings away from the soot and grime of 19th-century central Birmingham.
 
Irene Rosenfeld, the Kraft boss, was quick to break a promise that no jobs would be lost following the takeover. Not long after taking control — a matter of days later — she shut Cadbury’s Somerdale factory in Keynsham, near Bristol, at the cost of hundreds of jobs. To add to her ruthless reputation, the hard-nosed American executive, now 62, refused to appear before a committee of MPs to explain her actions. Five years later, this newspaper’s revelations about its avoidance of corporation tax underlined just how far Cadbury has strayed from its ethical roots. It eliminated its corporation tax bills on some of its British companies by booking interest on an £8.2bn loan used to finance the takeover as an expense. Loading debt on to a company and funnelling interest payments offshore has become a textbook tactic used by large companies to slash their tax bills. Other accounting ploys — with curious names such as the “Dutch sandwich” and the “double Irish” — involve shunting cash into Caribbean tax havens.

UK Tax paid by Facebook: £4,327

All these opaque practices are legal. To the defenders of big business, executives are not only acting morally when they dodge taxes but have a legal obligation to do so. To pay even pennies more than the law demands would constitute a breach of their so-called fiduciary duty to deliver as much profit as possible for their shareholders. To the critics, however, avoiding tax is immoral. Sidestepping the taxman deprives the Treasury of money that might otherwise be used to build new schools, employ more nurses and doctors, clean more streets and so on.
In this moral minefield, there is one certainty — corporation tax brings in comparatively less than it used to. As a proportion of the taxman’s total revenue, it has fallen from 10% in 2008 to 7.3% in 2013, according to a study by the Organisation for Economic Co-operation and Development. This year, according to the Treasury, just 7% of total tax receipts will come from corporation tax. It means ordinary workers, pensioners and smaller firms are being asked to carry a heavier load. Over the next five years the government plans to increase the corporation tax bill by just £2.3bn, while income tax receipts will soar by nearly £62bn.
Remember what the late US president Ronald Reagan said about tax dodgers? “When they do not pay their taxes, someone else does — you and me.”

The decreasing importance of corporation tax as a revenue generator for the Treasury partly stems from laudable government policies aimed at spurring the economic revival. Since becoming chancellor in 2010, George Osborne has cut the rate of corporation tax for large businesses from 28% to 20%. He intends to cut it further, to 18%. The aim was to create a more business-friendly environment, luring foreign firms to these shores and giving entrepreneurs the confidence to create new jobs.
However, tax avoidance is becoming a big problem for taxmen in Britain and across Europe. In recent years, there has been a trend for companies to get bigger, bulking up through mergers and acquisition, such as Kraft’s takeover of Cadbury. These powerful corporate goliaths cannot easily be pushed around by cash-strapped governments, and they have the resources to hire the best and brightest lawyers and accountants to game the system.
The rules of the international tax system date from the 1920s, when the League of Nations established the framework for taxing international trade. Back then, it was easier to monitor where companies generated their profits — and where taxes should be paid — as the global economy was dominated by physical goods. Nowadays a much larger portion of the value of a good or service is tied to patents, brands and trademarks. Loopholes in the international tax rules have allowed companies to shift this intellectual property to tax havens, where royalty fees are not taxed.
Consider Google. The internet giant creates much of its intellectual property at its Silicon Valley headquarters. However, many of the rights to these patents have been placed in an Irish-registered company, which is nominally headquartered in the tax haven of Bermuda. Advertising revenues from British clients are routed through its international headquarters in Dublin, and on to the Bermudan company. 

Google insists that it complies with the rules in all countries where it operates. In 2012 its chairman, Eric Schmidt, said he was “proud of the structure we set up”.
Other examples of controversial tax- reduction strategies include the routing of franchising and trademark fees overseas. Last year, McDonald’s transferred £114m of British revenues to Luxembourg. These “franchise rights fees” would have reduced its corporation tax bill in Britain by more than £20m. The European Commission is investigating an alleged sweetheart deal between McDonald’s and Luxembourg. Both deny any wrongdoing.
Apple is facing similar allegations over its arrangements in Ireland and the European Commission is also investigating tax arrangements between Starbucks and the Netherlands as well as between Amazon and Luxembourg. The big American multinationals get a far easier ride from a starry-eyed Osborne, and from Europe, than they do at home.
As your annual tax summary demonstrates, tax takes an Augustus Gloop-size bite out of your pay package — and the chocolate-guzzling child from Roald Dahl’s Charlie and the Chocolate Factory is getting hungrier as he cannot get his fix from big business any more. While Cadbury might regard corporation tax as an avoidable drain on its finances, the mere mortals who buy a box of Roses for Christmas, might feel they are paying more than their fair share.

Osborne likes to boast about the huge increases to the tax-free personal allowance that he has introduced, lifting the lowest paid out of income tax. When he entered 11 Downing Street, you could earn £6,475 a year without paying any income tax. Today you can earn £10,600.
While the front of the goose is not being plucked, however, his backside is. The number of taxpayers has dropped by 1.6m under Osborne’s watch from 31.3m to 29.7m, but the squeeze on the wealthiest gets worse. The top 1% are predicted by HMRC to pay 27.5% of the total income tax haul this year, up from 25.1% in 2012-13.
Stamp duty is the clearest example of the chancellor’s blatant tax increases. Let’s say you wanted to buy a home in Britain’s most expensive street — Victoria Road in Kensington, west London, where you could count the Duke and Duchess of Cambridge as two of your closest neighbours. The typical home on the street costs £8m.
 

The stamp duty bill used to be £560,000 to buy this property. After changes outlined a year ago, the bill rose to £873,750. After his second round of changes, outlined in the autumn statement, the bill will rise to £1.1m, if it is a second home or a buy-to-let property, from April.
Some are happy to pay more tax. Terry Deary, the author of the cult children’s series Horrible Histories, said he would be happy if the top rate of tax doubled to 90%. In a recent interview with the Money section, he said: “The ones who have should give to the ones who need — even if it means a 90% top-tax rate. We don’t pay nearly enough tax in this country. I’m at 40%. I never dodge a penny.”  

For the rest of us — who can afford only to walk down Victoria Road — HMRC’s notorious inability to pick up the phone leaves a deep suspicion about its ability to run the tax system efficiently. Last month, it was branded “incapable” by Meg Hillier, chairwoman of the Commons public accounts committee, which published a report exposing chronic customer service failings, such as HMRC answering only 50% of phone calls in the first half of 2015.
It is this department that has obtained controversial powers that will allow it to take money from your bank account if a tax debt needs to be paid, known as the “direct recovery of debts”. But will HMRC correctly identify those who owe money?
Its embattled boss Lin Homer is repeatedly hauled before MPs but the select committee hearings can be painful to watch as she struggles to defend her department’s dismal track record. Her salary of about £180,000 a year should soften the blow, as well as her eventual pension of about £115,000 a year.
John Cullinane, tax policy director of the Chartered Institute of Taxation, said: “The tax system needs to work better for the ordinary taxpayer trying to do the right thing.” Meanwhile, HMRC’s advertisements, featuring builders and others in a lotus position, urge us to “find our inner peace” by filing our tax returns early before the January 31 deadline. How many people will do it while eating a bar of Dairy Milk to cheer themselves up? 

Double Irish’ wheeze holds key to Facebook’s tiny tax bill 

 

An arcane accounting manoeuvre known as the “double Irish” lies at the heart of Facebook’s success in slashing its British tax bill.
Last year the internet giant paid a mere £4,327 in corporation tax to HMRC – more than £1,000 less than the tax paid by the average UK worker on £26,500 a year. It achieved this partly by legitimately booking giant, share-based bonuses for staff as an expense — which saw Facebook’s UK division reporting a £28.5m accounting loss last year.
That, however, was merely the start of the social network’s legal, but hugely contentious, tax-avoidance strategies.
Although Facebook has a big operation in London, with 850 permanent staff, firms that buy advertising on its network must do so through a subsidiary in Ireland. The Dublin-based company pays Facebook UK a sales commission of 10% to 15% of the value of each advertising deal struck with a British client. The fees amounted to £105m last year.
Thanks to this manoeuvre, Facebook is able to report a small proportion of the revenue it generates from British clients in Britain. In this way profits generated from deals struck by London-based sales staff are shielded from the UK taxman.
The remainder of the British revenue — between 85% and 90% of the value of deals — is paid out as licensing fees to another Facebook subsidiary, which is registered in Ireland but nominally headquartered in a Caribbean haven. Because of a loophole in the US tax code, the “double Irish” structure allows Facebook to avoid paying US corporation taxes on these overseas profits.
Facebook is not just funnelling its British revenues through Ireland; Dublin is also the hub for the company’s entire international business.
Last year Facebook Ireland — its main operating company — generated revenues of €4.8bn (£3.5bn), equivalent to €10m for each of its staff in the country. However, it paid corporation tax to the Irish government of just €3.4m (£2.5m) after paying out most of its revenues to other Facebook companies. 

 Original Article : http://www.thesundaytimes.co.uk/sto/news/focus/article1644656.ece