UK Uncut: blithering idiots

And ignorant to boot.

UK UnCut claims that since Boots, bought out by private equity firm Kohlberg Kravis Roberts in 2008, moved its headquarters to Switzerland, the tax it pays has dropped from 33% to 3%, saving £150m a year.

It isn\’t the move to Switzerland which has reduced Boots\’ corporation tax bill. Not, at least, in anything more than a very minor manner.

It\’s the interest bill it\’s paying which has reduced corporation tax paid.

The company was bought by loading it up with debt. The interest on that debt is therefore an operating cost of the company and so reduces taxable profits.

Do also note that it\’s not actually certain that such a manouvre has reduced total tax collected. Of course, yes, the debt has reduced taxable profits at Boots and thus the amount of tax that Boots pays. But the interest received by whoever does actually receive it is taxed at the level of the recipient. If it\’s, just as an example, a higher rate taxpayer who holds one of the Boots bonds, then they will be paying 40% (possibly even 50%) on that interest received: a higher rate than the 28% corporation tax that Boots would have paid without the interest bill.

And whining that all the interest goes to foreigners doesn\’t work either: what this means is that there\’s some £billions (whatever the number is) of foreign capital being used to provide luvverly shops and pharmacies for Brits to enjoy: us getting the benefits of foreign capital is a good thing.

I would bet reasonable money that not a single one of UK Uncut would be able to explain this story. Yet they\’ll still protest it: gullible, ignorant fools that they are.

Of course, don\’t look for those who do understand this (Mr. Murphy perhaps? TJN?) to bother to tell anyone. Gullible, ignorant fools are just what they need and are thus delighted to have.

11 comments on “UK Uncut: blithering idiots

  1. One of the biggest mistakes the left (and idiot Russians) make is thinking where the profits go is of paramount importance. They think that a shop operating in the UK and sending its profits to Switzerland is somehow depriving the Brits of any benefit. Never mind that the gross profit margin will be something like 20% of revenues, meaning the other 80% of of revenues get spent locally on salaries, supplies, logistics, and a million and one other things which a company must purchase locally as a normal part of its ongoing operations.

    I tried pointing this out to a Russian who was complaining that the profits from the Sakhalin II project were expatriated. The construction costs were $24bn, of which probably $12bn was spent in Russia. The operating costs are probably $100m per year, of which probably 80% is spent locally on salaries, etc. But no, they are far more interested in where the profits go, which in most cases (especially retail) are usually a fraction of the overall expenditure, expenditure from which the locals directly benefit.

  2. ” They think that a shop operating in the UK and sending its profits to Switzerland is somehow depriving the Brits of any benefit.”

    Indeed. And note that they immediately discount the benefit of having a shop in the UK selling stuff people want to buy…

  3. @TimN: “I tried pointing this out to a Russian..”: yeah, I had to make exactly the same point to an Indian. And that was twenty years ago, so the idiocy is rather persistent.

  4. “They think that a shop operating in the UK and sending its profits to Switzerland is somehow depriving the Brits of any benefit.”

    Bizarrely, at the very same time as believing this, they demand that a British company operating shops in Germany should pay tax in Britain.

    Sometimes I truly wonder what goes on in the head of a Leftie.

  5. Even in the event that the entire cash is provided by foriegn banks, the original transaction will have seen British Investors, pocketing the acquistion money. They will then invest / spend this money, and tax will be acrued albiet for other activities than Boots profits.

    When a foriegn company is repatriating its profits, it is by definition only taking a share of the value added of its investment. Therefore the society in which it made its investment has to be better off. After all, distributable profit can hardly be more than the value added can it.

  6. Yes, Serf–and the profit taken, whether distributed or not, is often a very small part of the value added, typically being held down not only by competition from like alternatives but of all other possible choices for the consumers’ pennies.

    Ultimately, it boils down to the existential choices between autarchism, in which all labor mightily for very little, subject to vagaries of weather, etc. and modern civilization, characterized by constant innovation and expansion of choice.

    The driving force toward the latter is integration of all in activities benefitting both the individual
    and all others: on this there is general agreement between “right” and “left.”

    The split is between the “right,” or “conservative”
    (actually, classically liberal) and “left”, “liberal,”
    “progressive” (actually, one or another shade of “socialist”).

    The former (the ‘right”) hold to a “rule of law” based on private property in one’s self, in the fruit of one’s labor, self-determination as to the labors in which each engage, and contractual bonds between participants Planning of future outcomes is undertaken by each individual–on his own–by reference to “the market” where most sorts of exchanges take place (and especially to the ever-changing prices of the market).

    The “left” seek a holistic approach involving overarching plans for the entirety,which, they believe (without a single instance of evidence in support and very much to the contrary) will result in far greater abundance of all that men desire and
    in which an equal distribution of the fruit will greatly increase the share (living standard) of the great preponderance of people while diminishing that of only the very greediest accumulators of wealth. This latter approach requires the general subordination of both persons and property and the activities in which both are to be involved to a regime of “planning”–entrusted to political leaders.

  7. Pingback: Tax Research UK » Worstall really doesn’t understand tax - unless he’s hiding it well

  8. You make some valid points, but I have to disagree with you about interest being an “operating cost”. It is a cost if financing Not an operating cost. In my experience, operating profit is ALWAYS before interest.

  9. Well said Tim. Posted some similar comments about Richard & UK uncut on my blog.

    I get the protests, but UK ukcuts targeting of the same firms is simply seeming more like a vendetta rather than a serious protest when there are so many other firms who avoid tax.

    As for Richard, well aside from not allowing any comments to his blogs that question tax avoidance v lessening debate, he won’t entertain the role accounts/accountancy firms have in helping these firms to find and use these exploits. Remember they’ll get bonuses for doing so and charge rates to reflect how good they are. A point I’ve raised with Richard, yet everytime he’s moderated these comments so they never appear on his site. UK uncut followers have certainly boosted his profile, but why stifle comments from all views?

    The other big issue I have is tax lessening is fine, yet avoidance isn’t. These are the same thing! If Richard really was as moral as he comes across, he wouldn’t even entertain lessening as this too deprives HMRC. He’d simply add up his clients bills and tell them what they owe. There wouldn’t be any mention of lessening anything.

    HMRC under collected some £200bn over the last few years I read recently, and HMRC cockups aside, only £25bn (from protesters claims) is corp avoidance. 4-5x this is due to INDIVIDUALS avoiding or under paying tax

    But then targeting your potential support base over nasty corps isn’t going to win support, is it!

  10. Uk Uncut are correct i am afraid. Here is how whole corporate off shoring loan system works.

    Companies that operate in the UK pay tax upon their UK profits, they pay VAT, they pay national insurance on their UK staff’s salaries and those staff pay income tax. They will pay local business rates on their premises.

    Where the company is headquartered if it is a multinational determines what happens to their earnings once taken out of each country they do business in. It is generally a good thing to have multinational headquarters as you will gain extra tax revenue, but also because they use lots of other expensive goods and services, and employ the well paid staff. If the headquarters of a firm is in the UK then they will likely use a UK law firm, a UK accountant, UK IT consultants etc etc

    The issue many people have is with tax rules that basically allow you to massively reduce your tax liability in the UK (and elsewhere) by various methods, often involving loans. Loan interest payments aren’t taxed (quite sensibly) but this can be abused by using an offshore headquarters. So the owning company is based in the British Virgin Islands “lends” lots money to its UK subsidiary which makes regular interest payments back to the owning company. Those interest payments happen to coincide with the profits the British subsidiary makes, which basically reduces its profits to 0 and therefore reduces its tax liability massively. The BVI company has very healthy profits but in a country that doesn’t tax them. It gets much more complicated but that is basically the idea. Google “sold” various technology rights to their European subsidiaries and receive interest payments back, hence their low tax rate.

    The real kicker is that these Headquarters that are making all the profits and pay zero tax are often held under nominee directorships, so you cannot find out the real private owners..

    The bank address for the offshore Headquarters company can be anywhere. It does not have to also be in the off shore country.
    The company nominee directors have direct access to this bank account to do what they want.
    This is because the offshore havens do not require the accounts to be audited or even for accounted to be submitted in general.

    Ironically the “EU Tax savings directive” passed in 2008 stopped the ability of private individuals to do this a few years ago. They did this by forcing al countries banks to expose all persons accounts everywhere to the othr governemnts. This was lead by the main progrssive tax countries ofcourse to stop personal tax liabilities moving off shore.

    Its painfully ironic what is going on. Think about he scale of the damage this causes and the ripple effects it has and its staggering.

    Talk to any London accountant you have known for 5 or more years and they will tell you this in detail. If you dont have a long standing relationship with them then they are unlikely to dicuss this dirty laundry with you.

    Tim adds: Not sure you’ve understood my point here. That what you describe above happens is true. It’s just not true of any of the cases which UKuncut are complaining about. That’s what my point is.

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