Ritchie should be pleased by this!

At the moment tax law ensures that companies based here, with branches in other countries, don\’t get taxed twice on the same money. They have to pay only the difference between our rate and that of the other country. If, for example, Dirty Oil plc pays 10% corporation tax on its profits in Oblivia, then shifts the money over here, it should pay a further 18% in the UK, to match our rate of 28%.

Quite: this applies to profits that such companies repatriate.

If you don\’t repatriate the profits then we\’ve got something called the CFC rules which attempts to make sure that you do pay such extra UK tax if you don\’t repatriate.

And this is where all of the Vodafone fuss is: there\’s a seeming conflict (and we don\’t know if it\’s really a conflict because HMRC was frit, were worried about what might happen at the Supreme Court, if EU law did trump UK law) between EU law on the freedom of establishment and the UK CFC rules.

OK, so what\’s the next step?

But under the new proposals, companies will pay nothing at all in this country on money made by their foreign branches.

My, my, won\’t Mr. Murphy be pleased? This is exactly what he\’s been arguing for all these years. This country by country reporting thing of his. Tax should be applied in the place where the economic substance of the transaction has taken place. So if a UK resident/domiciled company has a subsidiary in Oblivia, which is trading in Oblivia, then obviously the economic substance of the transactions is in Oblivia. And tax should be paid at whatever rate Oblivia decides: no further tax should be due in the UK.

This also gets us out from underneath the Vodafone thing: they made profits in Germany, selling phones and air time to Germans from German stores, so tax should be whatever Germany wishes to charge on these transactions and the UK doesn\’t get a sniff at it.

Appplying these same rules we also solve the Boots problem: they pay UK corporation tax on their UK profits minus their interest costs and everyone is happy. We even solve the Lady Green problem: Arcadia pays full corporation tax in the UK for it\’s a UK resident and domiciled company. Lady Green, being a Monaco resident, pays whatever Monaco charges on her personal income: we do have to assume that the personal income of a person has it\’s economic substance in the place where that person is resident.

Well, OK, we don\’t have to, we could insist upon Lady Green being taxed in the UK on the money she makes that comes from the UK….but if we do that we\’ve also got to do the other, which is to say that income of UK residents which is made outside the UK shouldn\’t be taxed by the UK. Which rather destroys Ritchie\’s whinings about nonDoms.

All in all, this should make Ritchie very happy indeed. It\’s exactly the corporate taxation system he\’s been arguing for all these years.

Well, if he\’s consistent it will make him happy that is.

4 thoughts on “Ritchie should be pleased by this!”

  1. Can anyone tell me if Monbiot has understood this correctly. On the face of it, it does seem bonkers to allow companies to keep profits made abroad – it would surely encourage them to move jobs out and keep money out.

    So the most likely explanation is that Monbiot is just wrong, but I’d like to know what this legislation would actually do.

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