OK, so our man tells us that perhaps companies should join a scheme where they can show that they\’ve been paying the right amount of tax. And he recommends one here. Which leads us to a .pdf prepared by the Tax Justice Network.
Which is, of course, just our man and his mates again. Which contains this:
‘Appropriate levels of tax’ are the rates stipulated by
the relevant tax authority within the country where the
company’s tax liability falls minus 3%. For example, in the
UK, HM Revenue & Customs set a small companies’ tax
rate of 21% on profits up to GBP 300,000 (with the rate
for 2010 still ‘to be advised’) and a main tax rate of 28%
on profits of GBP 1,500,001 or more. Therefore, for the
purposes of this question, the ‘appropriate levels of tax’
would be 18% and 25% respectively.
There is a simple reason for defining this ‘appropriate
level’ a little less than the tax rate laid down in law: taxable
profits and accounting profits are not the same thing.
As a result, it is unlikely a company will pay exactly the
tax rate laid down in law on its declared taxable profits.
The rate may be higher because some costs allowed for
accounting purposes are disallowed for tax. Examples are
entertaining costs and many legal and repairs expenses.
In contrast, some expenditure is treated more generously
for tax purposes than it is in accounts. One example is
the purchase of many capital items, especially if those
costs relate to IT, and other electronic equipment, which
often receive a tax allowance earlier than the assets are
expended in accounts. For these combined reasons,
Tax Justice Network has set parameters within which,
in normal circumstances, they would expect to find
the payments of a company that was not undertaking
aggressive taxation planning to fall.
Which is interesting, don\’t you think, especially if we compare it with the original report about how much tax is being avoided by companies, prepared by our man back in 2006. Where we see that the tax gap is 7.5%.
But, umm, we\’ve also got this assumption of tax compliance if the numbers are out by 3%, to allow for the existence of allowances. A 3% which our man doesn\’t allow for in his calculation of the gap.
So, erm, the tax gap is, by Ritchie\’s own estimations, just over a half of Ritchie\’s own estimation.
What would be fun though is if someone could, someone who knows more about corporate taxation than I do, tell me whether the TJN assumptions are reasonable? Just as a feeling in my water I would suspect that a business investing heavily in capital equipment (or with a heavy R&D spend, given the 125% allowance there) would find their effective tax rate diverging rather more than 3% of profits from the headline rate.
Finally, there\’s rather an opportunity to compete with this scheme:
All business participants in the SEE scheme are required to pay fees. This is the primary income for the management of the SEE scheme. However, our fee structure is currently under review.
I suggest a simple labelling scheme: \”I obey the tax law\”. The right to use such a logo will be made available for minor level fees.
We can afford to licence it on the cheap because of course we shall be using HMRC as our judges of who is and who isn\’t obeying said tax laws. If the CFO isn\’t doing pokey for fiddling the books then they\’re obeying the law, obviously.
I think we could probably get this started for a few mere hundreds of thousands, don\’t you? think the Ford Foundation would pony up? They are the people who fund Ritchie after all…..