Now this is absolutely fascinating. And it\’s a hostage to fortune from Our Retired Accountant from Wandsworth. Here\’s his statement:
Richard Murphy [email protected]
If the General Anti-Tax Avoidance Principle Bill I have written which is now before parliament was passed tax avoidance would be illegal.
So, as we often do, let us take his argument as being true and see where that leads us.
If tax avoidance would be illegal in a world with a GATAP in it, then things which are legal in a world with a GATAP in it cannot be tax avoidance.
So, let us have a little potter through some recent accusations of tax avoidance and see whether they would still be legal after a GATAP came into existence.
Let us say, Starbucks. Paying royalties for the name and brand to a Dutch company. Hmm. From the bill:
Arrangements are not tax arrangements if—
(a) the arrangement was specifically permitted by legislation or regulation
relating to any of the taxes referred to in section 1(3) or is clearly
consistent with principles on which the taxes referred to in section 1(3)
are based whether express or implied, or
So if we\’ve specifically got legislation that allows the practice then it\’s not a tax arrangement that gets disallowed under the GATAP.
Everyone agree so far?
Excellent. So, we\’ve actually an EU law which states that taxing royalties from one company in one EU state to another company in another EU state is illegal. No, really, we do, we\’ve a law that insists that we are not allowed to tax such arrangements. So, given that we have such a law it\’s not exactly a great leap to move onto the idea that such royalty payments are in fact allowed: we\’ve legislation which says so. Great, so, Starbuck\’s royalties are not, by Ritchie\’s own bill, tax avoidance.
Starbucks pays a 20% margin (no, not 20% of gross margin, just a 20% margin) to the Swiss coffee buying company. This is clearly and obviously legal. Paying no margin at all would mean that Swiss company is doing the work for nothing. And yes, we do indeed have legislation allowing companies to charge a margin for their work.
Thus Starbucks seems to be carrying out no tax avoidance at all: by Ritchie\’s own standards.
Boots: The claim there has been that they\’re paying all that interest to Switzerland and that this is tax avoidance. Unfortunately for the Murphmeister this is covered under the same EU law as the royalties. It\’s actually illegal for us to tax such interest payments. Again, such a provision obviously means that the ability to make such payments is enshrined in legislation. This is therefore not tax avoidance.
Vodafone: we\’ve been through this too many times already. But EU law clearly allows a UK corporation to have a Luxembourg subsidiary. And we\’ve even case law (Cadbury\’s) which shows that this is indeed legal. So again, it\’s not tax avoidance.
Facebook, Google, Microsoft, selling from Ireland. We\’ve EU legislation that insists that any corporation can sell right across the EU from any one EU country and pay corporation tax in that one single country of incorporation. We\’ve legislation which says this: thus obviously, by the Murph\’s own standards, this is not tax avoidance.
Amazon selling from Luxembourg: we\’ve a double taxation treaty stating that the use (or possession) of a warehousing or logistics chain does not lead to a permanent establishment and thus to liability for corporation tax. Again, by the very test that\’s being set, this is not tax avoidance.
VAT at Luxembourg rates: EU law. VAT on services (and electronic goods are defined as services) will be paid at the rate of the country of supply, not destination. This is the law as it is written: this is not tax avoidance.
How about the Greens? We do not charge UK income tax on dividends paid to people who are not citizens and not resident in the UK. Lady Green is neither: she does not pay tax on her dividends. This is the law. Even if you want to claim that her ownership of the company is tax dodging: the law states that transfers between man and wife are tax free. This simply is not tax avoidance: the law specifically states that they may do these things.
Have I missed any cases? I don\’t think so.
So to recap. We\’ve got Richard Murphy insisting that his bill will make tax avoidance illegal. Yet all of the examples he\’s been giving us of tax avoidance will remain legal. Which leaves us with two possible conclusions.
1) They\’re none of them tax avoidance.
2) It\’s a crap bill.
Do note that this is not an either or choice. Both can be true at the same time.