Nick Cohen doesn’t understand the Vodafone case, sadly

The revenue endured the greatest scandal in its history when it allowed Vodafone to pay just £1.25bn of an alleged £6bn tax bill from a takeover organised in Luxembourg.

Sigh.

There never was a £6 billion bill. That was entirely made up by Richard Brooks at Private Eye (he even explained his method to me once, and yes, it really was just made up).

The dispute was, should profits made in Germany, made by selling phones and services to German consumers out of German shops through a German company, profits that were then parked in Luxembourg, should those profits be subject to UK corporation tax?

If they had been parked in Cayman then, under the Controlled Foreign Corporation rules then yes. But in Luxembourg? The EU ruled no. Not Luxembourg, not HMRC, not Germany, but the EU law prevailed here.

Everyone also agreed that if those profits were repatriated to the UK (for example, so that Vodafone could pay them out to investors as a dividend) then they would be subject to UK corporation tax.

And that’s what Vodafone did: repatriated some of those profits and thus paid that £1.25 billion bill.

The tax bill on Luxembourg profits was zero. The tax bill on repatriated profits was £1.25 billion. Vodafone paid the £1.25 billion on those repatriated profits. There was no deal, no avoidance and most certainly no evasion.

The revenue didn’t “allow” anything at all. They collected every single penny of tax righteously and legally due on exactly the date that it was due. Who the fuck would want HMRC to do anything other than that?

But that Big Lie marches on, eh?

Richard Brooks, the author of The Great Tax Robbery, tells me Luxembourg is a far greater menace than the Caribbean laundromats. It benefits from the European Union’s free movement of capital, while the Cayman Islands, say, cannot. More dangerously, it inspires the Netherlands, Ireland and other EU states following beggar-thy-neighbour tax policies to join it in a race to the bottom.

Because tax competition is good, d’ye see? Corporation tax is a bad tax, it has higher deadweight costs than other methods of raising the same revenue. Therefore pressure to reduce the politically convenient but economically stupid corporation tax in favour of less destructive taxes, ones with lower deadweight costs, is a good idea.

The European Commission he presumes to lead is investigating the Luxembourg he created. It wants to know how Amazon could put £11bn through its Luxembourg-based subsidiary in 2013, while paying only £4m in UK corporation tax on goods sold to British customers, packaged in British warehouses and moved on British roads.

Because Amazon hardly makes any profits at all. So, they don’t pay much profit tax on not much profit. This is true at a global level as well as the UK level.

When even normally sensible people like Nick Cohen start believing these lies what hope for the rest of us, eh?

17 comments on “Nick Cohen doesn’t understand the Vodafone case, sadly

  1. “But that Big Lie marches on, eh?”

    Don’t they all? There is a general lack of honesty, of seriousness, of realism among our elites.

    The BBC says we live in an age of terrifying government austerity while public spending rises.

    We keep being told climate change is “worse than we thought”, while the globe stubbornly refuses to warm.

    Truth isn’t important to our elites, truthiness is all the rage.

    The only difference between pirates old and new is that instead of using muskets and cannons to seize other people’s money, Luxembourg uses accountants.

    Vodafone’s profits = “other people’s money”. Hmmm.

    Virtually every large British company has moved capital through Luxembourg including, it appears, my managers here at the Guardian and Observer, though they say such a structure was not about saving the group “any UK corporation tax when compared with an onshore structure”.

    Why don’t you follow up on that one, Nick?

    It benefits from the European Union’s free movement of capital, while the Cayman Islands, say, cannot. More dangerously, it inspires the Netherlands, Ireland and other EU states following beggar-thy-neighbour tax policies to join it in a race to the bottom.

    So not demanding high taxes is now “beggaring” people.

    It wants to know how Amazon could put £11bn through its Luxembourg-based subsidiary in 2013, while paying only £4m in UK corporation tax on goods sold to British customers, packaged in British warehouses and moved on British roads.

    How much VAT was paid on these Amazon sales? How much of the income used to buy them had already been taxed at source, at up to 45%? Is Amazon not paying National Insurance and business rates and road tax?

    Who is beggaring who here?

    The rest of us could not help but notice the success of racists and know-nothing nationalists.

    Fuck off, Nick.

  2. Perhaps someone should point out to him all these British companies who operate and pay corporation tax here when they should be basing themselves in a higher corporation tax country in order to avoid issues of tax avoidance.
    Will benefit the economy of those countries and harm our economy but at least everyone can feel glad there isn’t any corporation tax avoidance going on eh?

  3. I thought he made it up by saying there was £18bn total at issue, Corporation Tax was about 30%, therefore the tax due is £6bn ?

  4. Yes, exactly. He forgot to take off whatever corporation tax had already been paid on profits and or interest before doing his calculation. “Forgot” of course.

    And as I point out, actually, under the EU law the exact and precise tax bill due on money in Luxembourg was £0. There just never was a £6 billion owing of anything.

  5. Amazon has a funny business model. They seem to go for growth, market share, and as you rightly pointed out, very little profit.

    I do use Amazon UK extensively because they are efficient, convenient, and relatively cheap.

    I still wonder when they are going to make some profits for their shareholders.

  6. TheJollyGreenMan – amazon has grown considerably, still growing now at a rate few others of its size can achieve. So the company has more assets, more income streams, more diversified income every year – at some point they will reduce the growth rate and there will be big profits every year.
    Not forgetting the issue of what to do with profits once they are made and taxed – recall overseas profit into the US to use as dividend after taxation? Or use them overseas to continue to buy companies and expand income streams?

  7. Eddy, I have explained this countless times, what Tim says above about CFCs and so on. It’s not complicated. I’m not an accountant or economist.

    All you get back is whiny cr*p about “6 billion lost in tax” and a near psychotic refusal to look at the actual facts.

    I don’t give a flying duck what idiots like Murphy and the Guardian think of it, but I do wonder what this stupidity does to inward investment in the UK. Can’t somehow see people being keen to invest in a country where tax due is decided by a bunch of idiots who can barely add up and just think the companies should pay some random number based on whether they like them or not.

    Can anyone explain to me what the basic difference between Amazon, Starbucks, Barclays, Vodaphone etc. and what Stodge’s Stemcor does ? It looks to be like tax is now based on your political leanings.

  8. Well Timmy I must bow to your understanding of tax. Let’s face it Dave Hartnett did a deal with Vodafone which went against all HMRC’s protocols. I know because I was there.

  9. I would also point out that whilst HMRC are prohibited by law from revealing the circumstances of this case Vodafone are not. Why do they not release all correspondence etc with HMRC on this issue and show us all what the position actually was. After all they have nothing to hide. As you often say Timmy “who benefits?”

  10. theoldgreenfascist

    “Why do they not release all correspondence etc with HMRC on this issue and show us all what the position actually was.”

    What good for them would come from it? The plain facts that are already released have had no impact on the BS, what difference would more actual facts make?

    “I know because I was there.”

    Where is your testimony then?

  11. I wonder if TOGF is W Connolly? He’s certainly a prolix bullshit artist.

    Amazon have made shareholders a lot of money – particularly those who bought at £20 a share.

  12. “So the company has more assets, more income streams, more diversified income every year – at some point they will reduce the growth rate and there will be big profits every year.”

    Why do we presume this?
    Amazon could grow to the point of market saturation. Use profits to buy back the share capitisation & own itself. Now adjust pricing so it exactly equals costs & preserves market dominance. But make no profit.
    It’s a perfectly viable commercial concern. Its beneficiaries being its customers by way of services & its employees by way of remunerations. But no-one else.
    Is there something written in stone, a company must provide a taxation source?

  13. @theoldgreenfascist

    I’m interested, tell me more. I don’t doubt that Vodafone will do whatever they can get away, I also don’t doubt that those African car washers in our supermarket car parks are the people’s winnings from their exports either. I find this sort of thing interesting, tell me more.

  14. “theoldgreenfascist
    Dave Hartnett did a deal with Vodafone which went against all HMRC’s protocols. I know because I was there”

    Hang on, I was there and I don’t remember seeing you.

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