The basic point is that Rolls Royce doesn\’t have many sales in the UK therefore has little profit in the UK. And Ritchie manages to get this bit wrong too:
And they say its because they have to pay tax where they make their sales. Now this second excuse is odd for two reasons. First, because its not true. The world does not have destination taxes.
Actually, in the jet engine business, it largely does.
For here\’s how the business really works. You sell the engine to the airline at something around and about cost price. Then you also sell them a maintenance contract for the life of the engine. Decades in the case of some of RR\’s products. In order to provide that maintenance service you clearly and obviously have to have bases around the world from which you can provide it. These bases are, under the usual tax laws, permanent establishments. That is, they are taxed under the corporation tax laws of the country that they are in.
Sure, the one in Dubai (no, I don\’t know but I would suspect there is one) ain\’t payn\’ much but the one in the US will pay US corporate income tax and so on.
And I\’m afraid this really is true. The selling of engines is pretty much a no profit business. The maintenance and servicing of engines is a high margin, very profitable business. But just because of the way that the servicing takes place elsewhere the profits will be elsewhere. And so will the tax being paid upon them.
And second it’s odd because Amazon make a stack of sales in the UK but say they have to pay no tax here because they’re based in Luxembourg. That’s the exact opposite of the Rolls Royce line.
And the entire set of double taxation treaties around the world says that the use of warehouses and logistics chains does not lead to the creation of a permanent establishment and thus not to the liability for corporation tax paid on sales in a territory where there are only warehouses.
A service centre is a permanent establishment. And thus why RR pays foreign taxes and Amazon does not UK.
And here\’s what\’s so annoying about the MurphClown. He argues that tax should be paid where the economic substance of the transation resides. RR is doing so, paying tax where they provide the service that produces the profits. Eppur se queribunde.