So he goes through the accounts of Caffe Nero and finds out that while it make an operating profit it actually declares a tax loss. Because it’s paying interest on the loans the offshore companies took out to buy the chain in the first place.
This is offshore, therefore tax dodging and must be banned:
Three issues arise as a consequence.
Firstly, the U.K.’s policy of allowing tax relief on interest paid to acquire a trade must be open to question in the future: time after time companies appear to be in trouble because they are laden with debt that their owners have used to acquire them when that liability has nothing to do with the trade that the acquired company actually undertakes. A change in tax law to deny relief on interest incurred to acquire a trade seems long overdue.
Secondly, the use of a Luxembourg company within the structure noted here is not coincidental: under EU agreements tax may not be withheld on interest payments from one member state to another, even if the recipient state then allows the onward transmission of that interest to a tax haven without the tax that might have been deducted in the first state having been charged. This is, therefore, an exercise in tax avoidance. The time for the EU to reconsider the desirability of such arrangements is long overdue.
Lastly, UK company law needs reconsideration with regard to the ability of shareholders to load the debt that they incurred to acquire their interest in a company onto its balance sheet to secure a tax advantage. This debt loading creates financial instability that is potentially harmful to trade in the UK, the stability of employment in UK companies, and the tax revenue stream for the UK Exchequer, all of which are undesirable. Policy in this area is in need of reconsideration.
It’s time politicians realise people have had enough of this sort of abuse, whether it’s legal or not. Pogress towards reform is long overdue, but seems distant. Until it happens this issue is unlikely to go away.
So, what’s the bit he’s missed? It being Ritchie there has to be something he’s missed, of course.
That even if the loans were all onshore there still wouldn’t be any tax payable in corporation tax. Because the interest payments are higher than the operating profit. That it’s all offshore actually makes no damn difference at all to the tax position.
Further, the interest costs are so high that the company isn’t even meeting them in full.
Sop, what we’ve really got here is Johnny Foreigner sending his capital into the UK for us to enjoy tasty coffee (well, maybe) and losing money on having done so. To Ritchie this increase in our standard of living is an outrage that must be banned.
Is there no beginning to the Murphmeister’s talents?