And it\’s an interesting shout out too.
So, IKEA makes 79% of its sales in Europe and 62% of its purchases in Europe. It’s a European dominated business then.
That’s a lot of data, but you get my point I hope – tax rates may be falling but something around 27% is the norm without weighting for GDP.
And yet IKEA has a tax rate of 13.1% in 2009 and 19.3% in 2008. We have no idea whether these are current rates either: if the provision includes deferred tax the current rate may be lower, but we can’t tell.
All we can wonder is why the published rate IKEA records is so low compared to the rates available in most countries in which IKEA must actually make its profit.Without country-by-country reporting we can’t answer that.
It is, of course, a reason why we need country-by-country reporting. Only when a company reports its sales, costs, profit and tax on a country-by-country reporting basis can be know that it is really paying its way where it should.
Well, no. OK, we know the man doesn\’t know his economics so we\’ll not belabour the economic stupidity of his country by country reporting demand. Just describe it lightly.
Firms exist because why? Well, as Ronnie Coase won the Nobel for telling us, transaction costs, is because why. It can be cheaper to have the relationships inside the same organisation than to have them continually being negotiated and contracted by independent entities.
It\’s not a very difficult idea: nor is the very minor extension of it we need to make here.
Why do multi-national companies exist? Transaction costs is the because why. It is cheaper/more efficient to structure matters this way than it is to have a series of negotiations and contracts between independent entities.
Ritchie\’s (for yes, of course this delight is from that one of the country\’s leading tax accountants) demanding however that multi-national companies should and must be taxed as if they are a series of independent entities negotiating and contracting with each other.
That is, he wants to tax them by ignoring the very reason for their existence. And, I submit, that ignoring reality is not a good start on the road to dealing with the real world.
However, let\’s now turn to what the tax accountant, ignorant even though he may be of economics, should in fact know.
The first point is that, well, the tax authorities do know how much Ikea is making in each country. They are able to ascertain what their taxation should be. And of course, we do all trust the government, don\’t we? So if they\’re happy with the amount of tax being paid then we ought to be also.
It seems very odd indeed to insist that health care should be whatever the government says you can have, education is what government is prepared to give you, but not to take governments\’ word on whether a company is paying tax or not.
The second is of course Ritchie\’s constant and consistent error in looking at corporation tax rates. He looks at the headline rate and the rate paid and concludes that a gap between the two is evidence of malfeasance. When of course it is looking at the headline rate, as adjusted by allowances (a brief EU description of which is here) which should lead us to the rate paid.
It really is as if he\’d looked at income taxes, ascertained that the marginal rate is 20%, then worried about why people were not paying 20% of their income in income tax. You know, ignoring that £6,700 or so tax free allowance?