Sigh, Ritchie on taxes again

As the Guardian notes this morning, anger about large corproations not paying tax is growing. Ebay and IKEA are the latest to attract attention. I confess to involvement in the first story, having advised the Sunday Times on it, and the latter is not particualrly new – having been featurfed on this blog a number of times before – but the point is that the appetite for this story is not going away. The awareness has now been created that there is one rule for large mutlinational companies trading in the UK and another for smaller, local companies that are based in the UK and quite probably trade nowhere else.

What that means is that the awareness has been craeted that in their desire to open the UK for business the Tories have given the clear indication to multinationals that the UK tax system is for them an honesty box system where if they\’d like to pay some tax that would be nice, but if not, well, don\’t worry. The Tories dedication to creating a territorial tax system – where no questions are asked about what happens outside the UK – is the cause of this change in culture.

It\’s the damn EU rules.

The UK government cannot change them. It\’s not even tax avoidance: this is what the EU wants companies to do.

Dang, when will he get the darn point?

25 thoughts on “Sigh, Ritchie on taxes again”

  1. This presumably means Ritchie wants the UK to leave the EU then? Aren’t you therefore in agreement on this issue?

  2. Ritchie has answered his own question:

    “…multinational companies trading in the UK.”

    And there lies the rub…these are not British companies with headquarters in Britain, these are companies with headquarters elsewhere. In the case of IKEA, their HQ is Netherlands (holding comapny is charitable trust which founder set up to prevent squabbling amongst his offspring) and thus they are liable for corporation tax where their HQ is domiciled.

    So unless Ritchie is advocating either the break up of these companies so that they now have to have a HQ in each country in which they trade, or a trading tax, he really should just shut the fuck up.

  3. Dang, when will he get the darn point?

    oh, surely he has – the meretricious little crypto. The phrase ‘wilfully disingenuous’ may as well have been invented for him.

  4. Henry: no, that’s complete nonsense.

    The EU rules make things more complicated *for intra-EU operations only*, but in the absence of rules to the contrary, a company pays tax in the country where it does business.

    It doesn’t matter whether the company that runs IKEA shops in the UK is 100% owned by IKEA System BV or 100% owned by Dave Smith of Bognor Regis or quoted on the LSE: the company buys goods for a certain price, sells them for a certain price, pays overheads, declares its profit to HMRC if it makes one, pays tax on that profit, and then pays dividends to its shareholders, whoever or wherever they may be.

    Indeed, although the US and the UK are notable exceptions, most countries don’t even tax multinational companies on profits earned by overseas subsidiaries – because they recognise that that income will already have been taxed in the relevant overseas country.

    In general, Ritchie should shut the fuck up, but on this issue you’d be well advised to take your own advice.

  5. “As the Guardian notes this morning, anger about large corproations not paying tax is growing. …”

    Well that’s another victory for Richie & his mates. And there’s something you guys on the other side of the argument don’t get. The way this game works.

    The tax thing’s a good example but it’s done with gender pay differences, excess profits green energy benefits…you name it.

    The point is to create a narrative. Very few people are capable of understanding complex arguments. Especially if they contain lots of figures. But they can understand simple stories that have a logical progression.

    So you start with a notion. Companies are avoiding tax. Into the narrative you then pour any nonsense you fancy to support that notion & ignore anything that doesn’t. Your pals who share similar aims make their contributions. Doesn’t matter if they haven’t the vaguest about the subject. They can add ‘moral weight”. Then comes the clever bit. You guys who do understand the issues try to refute the claims. But to do so you have to use complex technical arguments which cause most of the audience to glaze over before the end of the first paragraph. With the choice of a simple story or a complex rebuttal they make the easy one. And thus another page of the narrative is written. The “so called experts” are trying to hoodwink the public in their own interests.

  6. John B – and if the company does its business from another EU country with only a portion of its showrooms or storage facilities here but payment processing elsewhere?

  7. He won’t.

    He’s struck a rich seam of self-aggrandisement. There’s plenty of money and attention to be mined yet.

  8. john b

    Sorry but I think you’re wrong. A non-EU company can set up in any one EU country and sell throughout the EU.

    If it is selling online without a physical sales presence in another country, then the sale is from outside the UK to a UK buyer. The profit is made from outside the UK – the UK buyer has placed the deal with an overseas seller. The business is therefore carried out outside the UK.

    Its very similar to BMW in Germany selling cars to a UK buyer. BMW pays tax in Germany on that sale, not in the UK. It is the UK buyer ago who pays tax in the UK on its own subsequent profits from sales. If that wasn’t the case, then Germany would not be getting its own tax revenue from BMW. Its point of sale, rather than point of purchase, which is the sales tax driver.

  9. Must be quite a number of UK based companies selling across the EU who pay tax in the UK but not in each of those other EU countries.

    Yet the media don’t seem to have anything against them. ‘Pay your French taxes’; ‘Pay your German taxes’ – funnily enough you won’t find our media crying out about British companies..

  10. Again, aren’t we talking about the same issues where the UK (and any other) arms are paying the head office an awful lot for the right to use the trade marks, know-how etc.? So what might appear to be operating profits are eaten up by licence fees?

  11. Martin:
    That’s where it becomes interesting, and is why thousands of people work at my former employer collecting very large fees for providing advice on this sort of thing.

    Your first example involves an EU company operating within the EU. The nationality of its shareholder, once again, is irrelevant – the rules are exactly the same whether it’s floated on the Euronext, owned by Jorgen Schmitt of Frankfurt, or owned by IBM Corporation.

    The reason the Amazon case is complicated is that – unlike your hypothetical – it *does* have a very large physical warehousing and distribution presence in the UK. If the EU rules Tim mentions were not in place, then it would be liable for UK tax on profits made there. The question would then be over how to allocate the profit between Ireland (IT infrastructure), the UK (physical infrastructure) and Luxembourg (brand ownership, IP licensing, etc).

  12. Martin: struggling to think of many UK companies that benefit from this rule to be honest. It’s very much not the same as the situation Vodafone or Tesco are in – in those cases, the UK company is the sole shareholder in German, Hungarian, etc companies that pay local corporation tax on profits and then remit dividends to London.

    Blue Eyes: no, this isn’t that. Unlike, say, Starbucks, Amazon’s UK companies don’t ever see any of the customer’s money – your contract is with Amazon EU SARL in Luxembourg. The UK business is a logistics provider to Amazon EU SARL, while the Irish business is an IT and call centre contractor.

  13. Oops, for IKEA you’re absolutely right, and the EU rules that Amazon and eBay work under and that Tim mentions here don’t apply.

    The IKEA UK business is a UK limited company that is profitable, that pays corporation tax on its profits, and that is owned by INGKA Holding BV (and presumably pays them dividends out of taxed profit).

    It also pays a 3%-of-turnover franchise fee to Inter IKEA Holding BV, which is supposedly a separate legal entity from INGKA and is owned by a trust in the Dutch Antilles.

    Unlike the Starbucks case, that seems entirely legitimate (from a UK point of view, at least: if I were the Swedish taxman I’d be a bit miffed that the brand value has been entirely transferred to a secret Caribbean trust): 3% for a global brand, set of intellectual property and distribution system like IKEA seems like a good deal, as demonstrated by the fact that the UK company is profitable even after paying it.

  14. Sorry, but in the case of IKEA, this has been going on for decades. The ever so Scandinavian group has “actively managed” their tax position in every jurisdiction they operate, often using whatever financial structure they can find, often completely unrelated to their business to reduce their tax bills. Throughout the ’80s, ’90s and probably later, a Finnish guy called Seppo operating out of Humlebaek, a village north of Copenhagen just over the water from Malmo, operated a leasing company based in Zug Switzerland (Cross Leasing AG) that put Ikea companies into leasing deals to shelter their European taxes all over Europe. They would buy in tax shelters from anyone, but Seppo had a preference for deals that gave him an excuse for a trip to SE Asia. I should know. I did enough business with him.

  15. BiS, so the simple narrative to counter Ritchie and his ilk’s arguments is to say “It’s not the fault of companies, it’s the EU.” Blame the EU. We do for just about anything else such as straight bananas and non-reusable jam jars.

  16. John B – as a multi channel seller online I come across many similar companies to myself, most larger (mine’s only a couple of years old). Selling on amazon and ebay for example. Across the EU, but based in one country – and as such paying one lot of corporation taxes. Or in certain cases (used it myself a few times) buying an item in one country to ship to another (dropshipped) with the profits in the UK. Again not liable for other EU corporation tax.

  17. Martin, I think you’re still missing the difference here. We’re not talking about you shipping things to a dude in Germany from the UK, which would never have attracted German corporation tax – we’re talking about you having a warehouse in Germany full of things that you sell to Germans. In the absence of the EU single tax legislation, the German taxman would be demanding a share of your profits from that, not unreasonably.

  18. John B – ‘In the absence of the EU single tax legislation, the German taxman would be demanding a share of your profits from that, not unreasonably.’

    So applying that to Ikea, Amazon etc what’s your explanation for why the UK taxman isn’t? Corruption? Neo-liberalism gone mad?

  19. John, I’m talking about me shipping from the continental EU (as in not Britain) to someone in Germany. Have shipped from Germany to Germany. Does a warehouse matter when its stock my company has purchased and paid for shipping to customer? The sale and purchase being overseas but profit due here.
    We do have the EU to thank for its single market ideas – a boon to companies across the EU.

    How about a large example – there’s a French company called ATS Euromaster (well, was French years ago). Most of its centres are in Britain, a number across certain countries in the EU. Billing in just one country. Who gets the tax? The country with the head office in? Or each country?

  20. SE: indeed. Well, for Amazon. For IKEA, it’s because the UK taxman believes, rightly or wrongly, that the franchise fees are a legitimate business expense.

    Martin: thanks, I’d misunderstood you. Yes, the single EU tax thing makes your life massively less complicated, and does the same for ATS Euromaster. Just as a matter of fact rather than a necessary truth, I don’t think there are many large UK companies that follow this business model.

  21. Pingback: FCAblog » Ritchie ducks the argument

  22. Bloke in Spain: You are of course correct.

    But you forget that refuting the position gives it credence.

    Take Jimmy Carr for example. He avoided taxes. Perfectly legal, so far as we know. The usual suspects create a narrative (as you say) that ‘ordinary people’ pay tax at some godawful rate and he’s an evil tax avoider.

    See how–somehow–he’s now evil? How tax avoidance is evil. As soon as the next page of the narrative is written, that tax avoidance is evil is taken as read.

    All you need now is that commie Cameron to start in on the “immorality” of it all, and they’ve as good as won. As much as I wish Jimmy Carr had told ’em all to fuck off, as a public figure, he really had no choice. Until the spotlight moved on….

    Surely the right thing to do is to face it head on: Tax avoidance is good, a duty of the citizen and the corporation’s fiduciary duty to their shareholders.

    That, or silence. But the BBC is a paid-up member of the grauniad propaganda machine …

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