This is getting silly about tax avoidance

CAFFE NERO, the coffee house chain, is the latest company to be caught sidestepping tax — after being found to have paid no corporation tax in Britain for the past two years.

Despite profits of more than £36m over that period, it has used entirely legal accounting manoeuvres to avoid payments.

Caffè Nero owns more than 450 branches across the country and is controlled through a complex structure of subsidiaries in the UK, the Isle of Man and Luxembourg, a tax haven.

According to experts, it borrows money from its offshore sister companies and uses interest payments on this debt to offset its tax liabilities in Britain.

If it\’s paying interest on loans then it\’s not making a profit. Because interest on loans is a deductible expense of a business. It just ain\’t tax dodging.

There is an interesting discussion to be had about the interest rate that is being charged, sure. If they\’re charging themselves 20% pa then that would be dodgy. But HMRC would already have had something to say about that. So they\’re obviously not.

8 comments on “This is getting silly about tax avoidance

  1. Others will confirm as I’m not an accountant, but isn’t there a 20% withholding tax on interest payments from a UK source so almost all the corporation tax is recovered that way anyway before going offshore?

  2. when will the penny drop that corporation tax, for a group that operates multi-nationally, is very difficult to enforce? I have been having this debate with qualified accountants and none of them seems to grasp the stupidity, however. The answer is NOT more crackdowns and more pages of legislative dribble. Change to something that does not rely on something such as profit, which is open to manipulation. Cue Mark Wadsworth….

  3. “is controlled through a complex structure of subsidiaries”

    uh? Controlled through a complex web of holding companies, or controls a complex web of subsidiaries. But your subsidiaries can’t control you.

  4. It’s our old friend the EU again.

    Directive 2003/49/EC, the “interest and royalty payments directive”:

    Article 1.1
    “Interest or royalty payments arising in a Member State shall be exempt from any taxes imposed on those payments in that State, whether by deduction at source or by assessment, provided that the beneficial owner of the interest or royalties is a company of another Member State.”

    http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32003L0049:en:HTML

  5. @diogenes: I don’t think you can look to MW and LVT to help you tax businesses more. Under his LVT proposals businesses would pay considerably less tax than they do now – they already have LVT, its called business rates. But they would no longer pay VAT, duties, NI contributions, corporation tax , etc etc. Businesses would be better off under LVT, because you are no longer taxing economic activity, just the land they use. Under LVT, Amazon, Google, Starbucks et al would pay less tax than they do now.

  6. @Jim…if companies pay less corp tax then that is fine by me. If that means that employees and owners receive more income, then tax them instead. It is much more difficult for individuals to escape a tax net than it is for multinational groups.

  7. Jim,

    Under his LVT proposals businesses would pay considerably less tax than they do now – they already have LVT, its called business rates. But they would no longer pay VAT, duties, NI contributions, corporation tax , etc etc. Businesses would be better off under LVT, because you are no longer taxing economic activity, just the land they use. Under LVT, Amazon, Google, Starbucks et al would pay less tax than they do now.

    Amazon and Google, yes. Starbucks, probably not. Starbucks depends a great deal on owning good locations that would be heavily taxed.

    But all those businesses like Amazon, or Firebox or thebeanshop.com are all used by customers who live in houses. So, while they’d pay far less tax, the people who buy their products will. It’s basically the same thing, although it would actually make it a more level playing field for all businesses.

    And ultimately, we tax unproductive rather than productive activities.

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