No, sorry Ritchie, you\’re wrong

Secondly, and also with regard to tax avoidance, when calculating corporate tax gaps HMRC has started with the assumption that the tax returns it gets are right and avoidance only exists if on investigation of the return, an activity is found that they wish to challenge as avoidance. This is what is called a ‘bottom up’ approach, which is discussed in more depth below concerning tax evasion. Tax Research UK, on the other hand, started from the accounts of multinational companies and tried to estimate what part of their profit should reasonably be taxed in the UK to estimate a tax gap. Again, an example helps explain the difference. In April 2012 the Mail on Sunday looked at the accounts of five US internet giants – Apple, Google, Amazon, eBay and Facebook. What they found was that the companies’ American accounts suggested that they had between them total sales income of £12.2billion in Britain in 2010. The Mail then suggested, using a methodology pioneered by Tax Research UK, which on the basis of their global profit margins it would have implied they should have, if all things had been equal, declared profits in the UK of almost £2.5 billion. UK corporation tax on that sum at 28 per cent (as was due in 2010) would have given them a bill of £685 million.

Instead they paid just over £19 million between them in tax in 2010 at an average rate of 0.8 per cent.

It has to be stressed all this is legal because the companies in question, bill their sales to UK customers from outside the UK and their UK operations are simply service functions. The HMRC approach to tax avoidance would not pick up the difference of £666 million found in these cases. The Tax Research Uk approach would. Unsurprisingly the figures are very different as a result. The HMRC approach may be to approve what the companies do as being strictly correct but it is very obvious that very few people would think that outcome appropriate and reasonable. The result is that HMRC have dramatically understated tax avoidance in the UK.

So let\’s go back to that definition of the tax gap then:

The tax gap is the difference between the money that the government should collect from the taxes owed in this country if everyone complied with the law and the amount of money the government does actually collect in tax.

So, take Amazon for example, they sell stuff into the UK through Luxembourg. In fact, they sell to the whole EU though Luxembourg.

Is this in some manner a violation of the law? Nope, it ain\’t. EU law is deliberately set up (and yes, such laws have then been passed by our own Parliament) so that it is possible to treat the EU in this manner. As one single market. Requiring only one company establishment to supply the entire 27 countries. This is not an unexpected dodging of the laws: this is the very purpose of the laws.

Even by Ritchie\’s own assumptions this is not tax avoidance.

5 thoughts on “No, sorry Ritchie, you\’re wrong”

  1. It really is astonishing how they can call their methodology revolutionary or “pioneered by”. I mean all they seem to do is to multiply the sales income with a percentage and then with another percentage. You would get laughed out of the room if you tried suggesting that in the most basic university accounting course

  2. Philip Scott Thomas

    … a methodology pioneered by Tax Research UK…

    Does anything more need be said?

  3. Just what is it with you and this Ritchie chap ? Its every other post , getting slightly monotonous now . This blog used to have some good stuff , but now its Ritchie this Ritchie that . He might be an arsehole but please try to cut down on it !

  4. I don’t really care about Ritchie (myself), but I see similar misconceptions repeated frequently on the Internet, and it seems fine to use him as a particularly frequent purveyor of misconceptions in order that the counter-argument can be seen as frequently. Also, it wouldn’t surprise me if people are repeating statements made by “Tax Research UK” (because assertions are phrased in similar way), so it could well be Ritchie’s fault anyway, so it’s doubly right to have another go at his assertions.

  5. @phil chuds ‘Its every other post , getting slightly monotonous now’

    How about, don’t read the blog?
    Richard Murphy is getting an awful lot of play in the mainstream media and almost no-one is taking the trouble to fisk his idiocy. It’s a good thing that someone is.

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