Something you might like

Having a quick look at The Guardian\’s accounts to check their complaints about the tax practices of the mobile networks.

4 thoughts on “Something you might like”

  1. If these companies switched financing from debt to equity a tax would be due. On first glance that seems like an odd distinction by the tax man. The explantion may be quite logical but still appropriate.

    Any comment on that Tim.

  2. There’s no hypocrisy in taking advantage of a particular tax structure while at the same time saying it’s a bad structure.

    Consider the following thought experiment: A future corporatist government enacts a whopping great tax break for media companies. Columnists at several of those companies point out that this tax break is wholly unnecessary for economic growth, and distorts the economy.

    The standard retort is that they can stick to their principles and opt to pay the full tax bill, without the tax break. That works for individuals, but not for companies – because if one company fails to take advantage of the tax break, it risks being competed out of existence.

    Here’s a real-life example: Many economists (yourself included) think that the nation would be better off with higher taxes on land and lower taxes on income. Nevertheless I’ll bet that none of those same economists are willing to fork over more money than is actually required of them.

  3. Andrew M. the difference of course being that Tim W. does not chide other people who does as he does and would probably gladly recognize that he does exactly what he does. It is one thing to campaign for changes in the tax law and another to claim that people who are following it are abusing it.

  4. Dinero: the owners of the debt pay tax on the interest payments, so it all washes out in the end. (Actually, it could be slightly different one way or the other, but it is near enough the same.)

    Illustration, with off-the-top-of-head tax rates and figures.

    Situation 1: company A’ makes £800k revenue with £400k costs and pays 25% tax on its £400k profit, so £100k to taxman.

    Situation 2: company A is a rather highly geared-up twin of company A’: it makes £800k revenue with £400k non-interest costs but £300k interest costs. So it pays £25k tax on its £100k profits. But bank B, which lent the money, makes £300k in interest. For the sake of simplicity, it happens to have lent the money out of its own equity, and books a healthy £200k in profit, on which it pays 25%, so another £50k to the taxman. £75k to the taxman so far: and if you track who was paid the bank’s costs (including employees) and what tax they paid on their earnings, you would make up most if not all of the remainder.

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