Idiocy, just sheer bloody idiocy

I was asked today by a journalist why there might be problems with a zero rate corporation tax – which is an idea many on the right are now promoting. I replied that zero corporation tax creates many problems.

The first is that companies would then make no contribution at all to society despite the enormous privileges they enjoy, including limited liability, which literally means they can dump their losses on the rest of us.

Sigh. Tax Research LLP makes no corporate tax contributions to society at all. Yet I am sure that there are those out there who insist that Tax Research LLP contributes to society. The NHS pays no corporate tax of any kind: yet I’m absolutely certain that the value of the NHS does not depend upon that fact. Further, while I may not think that the NHS is quite the right way of doing this, I would argue that the provision of health care services to 65 million people is something of value.

The value that Google provides is that we get to Google, the value of Amazon is that we get cheap books, the value of Starbucks is bad coffee. It is the production of an organisation that is the contribution to society that an organisation provides. What they pay in tax is fuck all to do with it.

Man’s mad.

61 thoughts on “Idiocy, just sheer bloody idiocy”

  1. Tim
    you said previously Quote
    Tim Worstall
    July 1, 2014 at 7:33 am

    Corporations don’t pay tax at all. The burden is always upon some live human being. So to argue that corporations pay “low rates” is simply nonsense. They don’t pay anything at all.
    Unquote

    Don’t really understand why paying no tax creates an issue for you now when you say previously Corps pay no tax anyway??
    I don’t understand your argument.

  2. Surely one of the greatest contributions are the jobs they bring to a country. Even loss making companies still pay out vast salaries.

    On another, off topic note, can anybody shed some light on this comment? I found at the end of the “who’s about on 18th” post: odd comment and odd place to find it; almost if was not meant to be found?;

    Arnald
    October 17, 2014 at 9:41 pm

    There’s a whole bunch of disingenuity and willful ignorance here about comments policies.

    Surely an honest disclosure to say that if the comment is contrary to the hosts’ policy it will be overlooked, is better than say, regular posters on this site who respond to a contrary commentator by verbally abusing them and so they decline to enter any further debate due to your twat-spuffs?

    Note that the stifling of debate on this site is not a function of worstall’s words, he’s far too lazy for that, but that there is a clique who claim, and relentlessy claim, to opine on his behalf.

    worstall may be fine with that, but worstall as an online presence is the sum of the comments.

    And the derivation of all those years of comments is a very narrowly-focussed “you twat” to Murphy, closely followed by a range of insults to women.

    It’s hardly fucking clever.

    Twats, you.

  3. @ ALD There Tim is talking about tax incidence – where the burden falls cf. who writes the cheque. That is why a zero CT rate would make little difference – particularly as allied to any abolition there would be a return to taxing dividend at the full marginal rate (the current rate is discounted by an amount equal to the CT that has been paid on the profit thus distributed).

    In fact, a zero CT would ensure that no burden then falls on employees – which one would have thought would appeal to the Left.

  4. Murphy is such a twat. He argues that 0% CT would mean companies weren’t contributing. Other then the jobs they create and the goods and services they buy and the other taxes they pay, no they wouldn’t be I guess. But presumably he is saying it would be wrong for a company to then benefit from these services – so what of loss making companies who are currently paying no CT? Should they be banned from using services today?

    Besides, the MurphMoron completely misses the point that a company making profits does its investors no good until the money exits the company and it is at THAT point that tax would be paid. Or maybe he doesn’t miss the point and is being a devious twat by making a trite meaningless point, knowing his sycophantic followers are too dumb to work out the reality for themselves.

    On another blog, he said something about society shouldn’t have losers. But if there were no losers, who would follow Murphy?

  5. Was the gorgeous pouting journalist who asked the tax expert the question a real person, or was it a figment of Murph’s fevered brain?

  6. Company activity gives rise to enormous tax takes with or without CT:
    VAT (on the added value)
    Personal income tax on salaries (higher than CT in any case)
    NI
    Business rates
    Indirect taxes on certain inputs.

    If CT is 0% the money will go somewhere:
    (Least likely?) the consumers’ pocket leaving them with more money to spend elsewhere.
    Shareholders (subject to tax)
    Investment (surely good)
    Salaries (more tax)

    Is CT an efficient tax and is it the best place and moment to take tax?

  7. Bif, yes it’s the self-importance that’s most annoying. “I am so important that journalists flock to me and sit at my feet to hear my wisdom.”

    Then we move to “I replied…” That argument from authority on a new level. He does not claim that some holy book says something, nor does he appeal to “some defunct economist”, but to his *own* reply.

  8. BIF – yes, I’ve noticed that it’s frequently the case that a journalist, politician, top civil servant, big 4 partner or senior member of the royal family asks Murphy a question on exactly the topic he wants to talk about on his blog that day. It’s a remarkable coincidence

  9. I recently attended a very interesting talk by this rising star:
    http://gabriel-zucman.eu/
    he said something I have heard before: the real reason we tax corporate profits is to stop everybody turning themselves in to corporations to escape income taxation.

    I hope I am not misrepresenting him by interpreting him as thinking the only satisfactory alternative would a progressive schedule of consumption taxes, but that’s too far from current practise to be feasible. To be clear, he did not say this, I am piecing together other things he said.

  10. Luis Enrique

    En corporations one’s activities does not escape income taxation; it only delays the day of payment until one draws the profits.

    I see it – for what my thoughts are worth – as an example of Tax incidence.

  11. Ironman

    not so, tax lawyers are a lot more creative than that. One route is to categorise living expenses, travel etc. as business costs.

  12. Luis Enrique – it would be a fallacy to suggest that if CT fell to 0% we could all avoid tax by incorporating. The money is in the company. then what? Pay it as salary or dividend and you pay taxed. borrow it and the company pays tax (not CT, but under S455 and no-one suggests repealling that) AND you pay tax. So leave the money where it is pay no tax and slowly starve to death on the streets.

    The argument that 0% CT would somehow lead to a collapse of the tax system and tax receipts falling off the cliff is only made by people who simply don’t understand how the tax system works.

  13. Yeah, but: try, as a director of major shareholder, of a UK company, in taking more than £8k a year out as “expenses” without paying some fairly hefty tax bills. Hell, it’s even more expensive to get the company to pay for your car than it is to buy it yourself. We already have laws to prevent this sort of thing.

  14. Luis – I do class some expenses as business costs. Travel to suppliers, travel to our storage units, travel to the post office 100 metres away from the house and travel to the petrol station before nipping out on a research trip.
    Because they are wholly business related.
    The hotel room for the christmas fair in January and the dog in kennels for 2 nights – both wholly business related.

    Its when I have salary paid out that things become taxable for me rather than the company. I get to buy food, clothing, pay the household bills etc – not the company.

  15. Luis – are you serious? catagorise living expenses as business expenses and hey presto you’re dancing round the tax man because he’s obviously so stupid he won’t think anyone would do that?

    Can i ask how long you’ve worked in tax? After 10 years as a Tax Inspector and 17 years working as a tax advisor your plan doesn’t strike me as one that would work but if you want to talk me through how long you’ve been implementing it I’m always willing to learn new things.

  16. Luis

    “One route is to categorise living expenses, travel etc. as business costs”

    No. That would be a deliberate error on a return and possibly (probably?) mis-stating accounts. Personal costs are personal costs.

    I think we need to base this discussion on legitimate acts. So personal expenses, which are in effect drawing the funds out of the business, do get taxed when they are incurred.

    Overall Andrew has it exactly right: Ritchie doesn’t understand it.

  17. We keep hearing from lefties about businesses having too much influence in the corridors of power. Perhaps if they didn’t appear to pay VAT and CT they wouldn’t.

  18. it would be a fallacy to suggest that if CT fell to 0% we could all avoid tax by incorporating.

    phew, good job I didn’t suggest that

  19. guys do you really think that accounts and lawyers couldn’t work some angles if CT tax went to zero?

    do you really think highly paid individuals do not have considerable latitude over how they choose to be paid, how to report their income? I know I have seen empirical research showing how people response to tax changes like that, the only thing I got from a quick google was this
    http://eml.berkeley.edu/~saez/saez-slemrod-giertzJEL12.pdf
    but it’s not what I had in mind.

    also, if you think tax legislation is to bloody water tight, might some of you revise upwards you estimates of public sector competence?

  20. Luis – So you’ve read a bit around the subject and think it’s p*ss easy for rich people to run rings round the tax man and I’ve worked in the tax profession for 27 years (including both investigating and then advising many rich peolple) and I’m saying it isn’t.

    “guys do you really think that accounts and lawyers couldn’t work some angles if CT tax went to zero?”

    Well, I’m one of those accountants and nothing obvious springs to mind so I guess your choice is believe someone who works in the business that it really isn’t that easy or carry on believing your own version on the basis of whatever blind prejudice it is that guides you.

  21. Luuis – very grown up. Glad to see the debate is going so well for you that you’ve resorted to puerility.

    I’m fairly sure Kevin Nicholson would know it was typed PwC, not PWC.

  22. Luis

    “guys do you really think that accounts and lawyers couldn’t work some angles if CT tax went to zero?”

    To exactly the same degree they can OR CAN’T now. It will always be so.

    Again Andrew has it right: it isn’t easy. It may be possible…and then that loophole will get closed and they will need to find another possibility. That’s the way it is now though.

    0% will not lead to massive avoidance by “the rich”; well I suppose it will on Ritchieworld.

  23. Andrew,

    except it isn’t blind prejudice, is it? The existence of clever wheezes to help people reduce their tax bills by exploiting loopholes in legislation is well known.

    There are an awful lot of rules around transfer pricing, yet around 50% of US corporate overseas profits are reported in a very small set of countries with very advantageous tax rates, which proves those rules don’t work.

    I know butter wouldn’t melt in your mouth but I think I shall retain my belief that others in your profession might be a little more creative than you

  24. P.S it is NOT Richie-world where one reason for keeping CT is to limit tax avoidance strategies that could exist if CT went to zero, I have heard that from proper tax experts as opposed to halfwitted charlatans

  25. @Luis Enrique:”do you really think highly paid individuals do not have considerable latitude over how they choose to be paid, how to report their income? ”

    Well of course they do, and highly paid individuals already have more chance that the average man to incorporate themselves and do all sorts of tax related shenanigans. So any tax lost by that method already is most likely already lost right now. The point is more whether the average Joe would suddenly think ‘I know, I’ll incorporate myself and provide my labour via a company’, and whether that would mean a lot of extra tax is lost. And assuming that anyone who operates a limited company for their business right now can’t get their domestic food bill (or other non business related expenses) paid by their company, I don’t see what leeway there is for average Joe to suddenly run rings around HMRC either.

  26. Luis

    You hear about ‘clever wheezes’ in the media when the court case demostrates the wheeze wasn’t quite so clever. Or it’s a sensational story about how someone ‘evades’ UK tax by not living in the UK.

    Yeah, “clever wheezes” are so well known that whenever I ask people with your viewpoint to explain one to me, they never can but they can half remember something they read about something by some journalist who half-understood half the facts and that’s pretty much all the ‘proof’ you need isnt it?

    Are there legitimate tax reduction strategies? Of course there are but that’s not “exploiting a loophole”.

    But come on, explain one of these clever tax exploiting loopholes to us. If they’re so well known. No?

    And can you explain that ‘proof’ that transfer pricing doesn’t work in a bit more detail? No?

    Thought not. Let me guess, you can half remember something you read…….etc etc

  27. “I have heard that from proper tax experts as opposed to halfwitted charlatans” Luis

    Describing Murphy as a half witted charlatan is very unfair on half witted charlatans.

    But do tell us which ‘proper’ tax expert it was.

  28. bloke (not) in spain

    It really would do us all an immense favour if Google put a block on all search requests originating from European IPs for a month. Serve to concentrate minds.

  29. “the only satisfactory alternative would a progressive schedule of consumption taxes” Luis E

    Not at all.

    Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent.
    Adam Smith , The Wealth of Nations, Book V, Chapter 2, Article I: Taxes upon the Rent of Houses

    You could similarly tax patents and copyrights.

  30. ac1,

    sure, that could be part of it too.

    Andrew, well the aforementioned Zucman most recently, but I cannot remember who before that, too long ago, But I tend to mingle with types like the OECD centre for tax policy wonks, academics who work on tax (including that lot from the SAID school at Oxford, IMF Fiscal Affairs staffers, and other types who attend conference etc. on tax. And it would been one of these who told me that .I have definitely heard it said more than once.

    I am a burlesque dancer.

  31. @ac1: also mineral rights and radio spectrum allocation. Essentially anything that’s a government granted monopoly.

  32. Andrew, what is the purpose of transfer pricing rules? We have source based taxation right? How much economic production by US owned firms takes place in the Caymans, do you think? Do you still need me to explain why the proportion of US overseas profits accounted for by such territories demonstrates that transfer pricing rules do not work?

    film tax relief was quite a wheeze whist it lasted, wasn’t it?

  33. Luis

    Exactly my point my friend. The film tax reliefs were fun, then they were closed (the film tax credits are working fine now). That is exactly how 0% CT will work: schemes, which get closed, eventually people pay an approximation of the tax they should.

    Transfer pricing, well do you have any evidence of transfer pricing not working approximately as it should? That is, do you have any evidence other than OECD people, drunk on BEPS, who think the rules should be different? (Which is not the same thing is it)

    P.S. Where do you perform?

  34. Luis

    “film tax relief was quite a wheeze whist it lasted” – in what sense? Could you explain what the ‘wheeze’ was? What the loophole was? Or are you still talking tabloid generalities.

    The TP arguments centre around the value of IP. It’s a valuation issue not a ‘loophole’.

    You still don’t get it.

    Whoever you mingle with you don’t seem to understand what they say.

    I see, you’re embarressed to admit what you do as a job. That’s OK, i won’t push the point, you’ve embarressed yourself enough on here as it is.

    I’m off now but I’ll leave you with an analogy you might understand. Suppose you want to draw a picture and have a choice of two shops to buy your crayons. One sells crayons for £5 a box and the other for £1 a box. You haven’t exploited a ‘loophole’ if you buy your crayons from the second shop.

  35. Taking up Luis’s point, isn’t there an argument that it doesn’t matter that CGT actually raises bugger all revenue, since it’s true purpose is to prevent people finding ways to turn income into capital gain?

    And it’s pretty easy to see how an individual could use incorporation. Leave the profits in the co for a few years. Then become resident in Belgium for year, where tax on dividends are low. Pay yourself a sodding great dividend. Return to UK. Repeat as necessary.

  36. Andrew>

    I don’t think Luis has embarrassed himself by asking questions. He may be – is, mostly – wrong, but you haven’t done a particularly great job of explaining why, other than pronouncements that you know more about the subject and you say he’s wrong.

    In many ways, though, Luis isn’t entirely wrong. Of course switching to 0% CT would be a major change in the system, and of course that would result in a whole load of new loopholes to be closed – if for no other reason than that there’ll be far more incentive to pay attention to that area, but actually because we can trust that the government will fuck it up if they make the change.

    I think Luis is also correctly realising (intuitively) that our system is basically absurd in many ways. He just hasn’t quite realised that while he’s pointing at absurdity that will exist after the change, he hasn’t explicitly realised that the absurdity is there beforehand too.

    Luis>

    “Do you still need me to explain why the proportion of US overseas profits accounted for by such territories demonstrates that transfer pricing rules do not work?”

    Could you explain for us why you think it does?

  37. “Go to Belgium for a year…return to UK…repeat as necessary”

    And reveal.to the world you don’t have a fucking clue what you are talking about.

  38. Because the caymans are not really the source of profit. We are supposed to have source based taxation of multinationals. if you are going to tell me profits are due to IP held in Caymans I am not going to be impressed. At what price did Google sell its IP to whatever entity owns in in caymans

    I reckon I’m fairly clear on the absurdies of the current system. I find idea of zero CT attractive on basis other methods less absurd. I merely started by repeating a less stupid rationale for retaining ct that I hear from economists and tax wonks.

    The delightful Andrew seems to be saying with a straight face that exploiting loopholes in legislation is no different to choosing to purchase goods at lowest price and that clever tax wheezes exist only in the fervoured imagination of the lame brained left. He is in the minority on that one.

  39. bilbaoboy

    “Is CT an efficient tax and is it the best place and moment to take tax?”

    Isn’t that the key question?

    For larger co’s – ignoring the smaller personal services / incorporation bits above – if we have a 0% CT rate, don’t we need “withholding tax” for where zero taxed divs would otherwise head off across water..?? Yes, of course it would be reciprocated, but if we had 0% C Tax, we would need that? Or did I miss something?

    I know the EU prohibits this, but doesn’t withholding tax applied generally (across water) actually get rid of all sorts of existing avoidance – ie an easy form of simplification, deduct 20% at source across the board, job done..??

  40. Ironman

    “And reveal.to the world you don’t have a fucking clue what you are talking about.”

    Always happy to be educated. Please tell me where I’m going wrong.

  41. Luke,

    “And it’s pretty easy to see how an individual could use incorporation. Leave the profits in the co for a few years. Then become resident in Belgium for year, where tax on dividends are low. Pay yourself a sodding great dividend. Return to UK. Repeat as necessary.”

    Mate, have you really ever had any dealings with changes of tax residence, because from this statement I very much doubt it.

  42. A pertinent snip from Luis’s link http://gabriel-zucman.eu/files/Zucman2014JEP.pdf

    There is no shortage of plans to fix the corporate tax . Some commentators argue that it should simply be abolished. A repeal would undermine the individual income tax, as people would shift income to companies and try to consume within firms; therefore in its most radical — and coherent — form, this proposal comes along with the suggestion to abolish the income tax as well and to tax consumption instead (Mankiw, 2014). Toder and Viard (2014) suggest replacing the corporate tax by increased shareholder taxes: non -­‐ publicly traded businesses would be taxed on a flow -­‐ through basis, just like S -­‐ corporations today ; shareholders of publicly -­‐ traded corporations w ould be taxed each year on the rise in the value of their shares, even if the gains have not been realized. However, as the authors acknowledge, the reform would raise only half the revenue of the current corporate tax, a tax cut that would primarily benefit rich households at a time when income and wealth inequality are rising; and since equity prices are very volatile, it would result in unpredictable tax bills. The fact is, no country in the world has a well -­‐ functioning individual income tax and no corporate tax at all.

  43. I’ll freely admit that the job in which I control 100% of the shareholders that ever bother to vote has a much more generous, although still HMRC approved, expenses policy than the one in which the Chancellor is 100% of the voting population.

    Interestingly, the Chancellor’s expenses regime, in which he is a pretty influential voter and which can blithely ignore HMRC rules on taxation of expenses, id far more generous than either.

  44. David Moore

    “Mate, have you really ever had any dealings with changes of tax residence, because from this statement I very much doubt it.”

    Yes I have. I was trying to defend a tax adviser who was accused of failing to advise someone to fuck off to France or Belgium for a year. We said “you wouldn’t have fucked off to France just to save tax.” Turned out he had fucked off to France anyway, without the advice that it would save him 1/2 million in tax.

    Try again.

  45. Dear oh dear. Worstall, are you sure? Shoot your subs, etc.

    You are clearly out of your depth when it comes to the bigger pictures.

    Stick to the Catholic Gayers and the fact there is no slavery.

  46. This is one of those threads that merits a “jesus wanking in a sock” incredulity.

    She wore sandals, for a start.

    What I find a bit disturbing is that the likes of Luke and Enrique are being chastised for telling the truth.

    Where is the intellectual engagement?

    Oh, and yeah, I know plenty about all this. I know who the blowhards are.

  47. Luke

    How about you try to repeat that explanation in a coherent form, one that suggests you have some slight grasp of your brief. “Fuck off to France for a year” Jesus

  48. What you suggest Luke would be illegal in Australia due to personal services income rules. You can’t leave income derived from supply of personal labour parked in a company. I don’t know if there’s an equivalent in the UK but I’m sure there would be quick smart if it became common practice.

    I had a dickhead colleague once telling me all about how the way to go was to incorporate and work as a contractor – his plans included paying his mortgage and all his living expenses from company funds. Since I had worked that way myself for seven years (with my business and personal affairs scrupulously segregated) you’d think he listen when I told him it was illegal. But he knew a guy, etc, etc… I just said “Mate, you can self report anything you like to the taxman, but when you get audited you’ll be fucked.”

    No, there really isn’t much you can do in terms of classifying personal expenses as business related. I had a company because the clients I worked for wouldn’t pay any other way. Money wise it was probably a (small) net drag.

  49. How about a hybrid tax suggestion; have a corporation tax set at, say, 30% (close to the top personal level), but make all dividends paid from a company carry imputation tax credits to the extent that the company itself has paid tax (because there are usually numerous timing differences).

    So if the company paid a full 30% tax on profits, then any dividends come with a 30% additional tax credit, so if your personal rate was, say 35% then you would only pay 5% on that income.

    This largely negates complex tax avoidance for corporates except where they can turn income into capital gains which (unless a CGT exists) are usually able to be refunded without tax applying.

    Luis, I suggest that you also look at rules around under what circumstance one can declare oneself a contractor and incorporate. In many jurisdictions this is not something one can do simply for tax purposes. For example a simple rule often used is that if over 90% (say) of your income is derived from a single contract or company, then you are, for tax purposes, an employee and not a contractor and cannot deduct business expenses. With exceptions, 99% of current employees would be caught by this testing could not readily incorporate. Sure, can be gamed, but that surely is one of the best reasons to keep tax low, broadly applied and avoidance will thence be reduced at least.

  50. To those saying that corporations add value by creating jobs, I would remind you that you are mistaken.

    Corporations add value by providing goods and services. The Jobs are an input, just as much a *cost* as any material used in making the product.

    We don’t praise because a product uses a lot of iron or electricity, so we shouldn’t praise because it uses a lot of labor.

  51. Interesting idea Ed, but I still think it would be easier to not have company tax and just tax the dividends/salaries. Mostly because then it would be clear where the tax incidence was falling. As it stands, people get this idea that company tax is free money somehow relieving their tax burden.

    Dividend imputation is quite common already – for investments anyway.

    I haven’t worked for myself for a while so I’m not up on the current law, but when I did the first test in Australia was more than 80% of income from a single employer meant you weren’t deemed an employee. This ran into problems because they accidentally captured tradesmen who, while definitely independent contractors, could easily end up on jobs that ran over a year (think several housing estates on one contract or a 50 storey building). That was amended with further tests such as whether you got paid for a certain scope or by the hour, and whether you supplied your own tools of trade. It works pretty well.

    I always had a diverse enough client base that I never crossed the 80% from one employer – but even if I had, the clearly documented quotes, providing my own tools, organising my own time would have protected me.

    It’s worth noting that companies loved the idea that their employees would voluntarily become contractors invoicing them for consulting services. “No HR, insurance, redundancy, or leave entitlements – and they want to do this? They think they’re better off? Where do we sign up?”

  52. Ironman

    “How about you try to repeat that explanation in a coherent form, one that suggests you have some slight grasp of your brief. “Fuck off to France for a year” Jesus”

    As before, tell me why I’m wrong, and why you are so angry.

  53. Because you’re a stupid bullshitting twat.

    but thank you for confirming you don’t know what you are talking about…again.

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