Ritchie’s a card, isn’t he?

From his slides at his talk:

It is precisely because of the failure to tax on this basis of what they really are that so many opportunities for tax arbitrage exist within the current EU and worldwide tax system.

Multinational corporations think as single entities, act as single entities, report their affairs as single entities, and should therefore be taxed as single entities.

But they are taxed as single entities. In their domicile of residence. That’s what Ritchie wants to stop of course.

13 thoughts on “Ritchie’s a card, isn’t he?”

  1. So what Murphy is proposing is unitary taxation administered by a third party entity or entities other than the governments where these multinationals have business operations.

    Huh.

    For a guy who’s spending a lot of time banging on about how Greek democracy is being crushed by third party entities other than the elected government of Greece, you’d think he’d be a bit less enthusiastic about unitary taxation.

  2. umm … but a multinational can do things like have a subsidiary in a favourable tax jurisdiction make internal loans that reduce reported profits in other locations, even if the group as a whole is not borrowing any money from anyone. If they were taxed as a single entity, you might only allow external financing costs to be deductible. Isn’t that what he’s getting at, allowing for all this internal trade nonsense?

    (if I am wrong about how interest rates are treated, blame me having only skimmed this:http://www.ictd.ac/en/publications/limitations-interest-deductions-suggested-perspective-developing-countries )

  3. Bloke in Costa Rica

    That would assume a level of coherence in his arguments not hitherto in evidence.

  4. It’s worth noting that according to HMRC, in 2012-3 the tax gap was estimated to be £34bn.

    Of that £34bn, it was estimated that evasion of corporate tax totaled £3.9bn, of which £1.8bn was attributed to large corporations.

    So, if Murphy managed to get every last penny due to HRMC for the large multinationals he frets about, he’d have narrowed the tax gap from £34bn to somewhere around £32bn.

    Note that evasion of income tax, national insurance and capital gains taxes are estimated at £14.2bn, and Murphy ignores this fact almost completely, despite it being by far the largest component of the tax gap.

    What multinationals do or don’t do isn’t the point… The point is that if you’re serious about closing the tax gap, you don’t start where you’re efforts will have – even in the best case scenario – no material effect on either tax evasion or the tax gap.

  5. Is this Dickie explaining what he supports or simply describing the current state of play? In that, does he follow this up with suggesting multinational corporations *aren’t* monolithic?

  6. @Luis Enrique

    “internal loans that reduce reported profits in other locations, even if the group as a whole is not borrowing any money from anyone.”

    That’s outrageous.

    If only there were some anti-avoidance provisions aimed at limiting interest claimed by UK companies by looking at UK net debt/interest and comparing it with consolidated (i.e, external to the group) world-wide group accounts.

    Oh, wait, there is and it’s contained in FA 2009.

    Phew.

  7. It’s worth noting that according to HMRC, in 2012-3 the tax gap was estimated to be £34bn.

    The problem is, the Lord High Tax Denouncer doesn’t believe HMRC’s tax gap figure preferring his own fantasy figure of £119.4 billion and rising, the majority of which is supposed international tax dodging by multinationals.

    Next he’ll be telling us he’s black.

  8. Andrew well that’s good to know, as o indicated my knowledge patchy. And do you think those provisions are sufficient?

  9. Luis, the guys on this blog do talk about tax incidence quite a bit, but let me have a little go at answering your question.

    When government taxes the profit of a company, then that company’s profit is reduced, (duh!).

    When a company’s profit is reduced then pressure is put on its share price.

    When pressure is put on a company’s share price then it has to examine its investment strategy and this quite often leads to reduced or even curtailed expansion plans. Sometimes, shock! horror!, the company might be forced to contract.

    Thus, your least favourite high street coffee shop might not open a new outlet, thus not spending money fitting out its new premises, or employing the local arts graduates as baristas and floor sweepers, or contracting with a local retailer for milk or sticky buns or whatever, and not setting up a regular delivery contract and, of course, not paying local business rates or paying the taxes and national insurance deductions for its workforce or, last but not least, (though I’m sure that I’ve left plenty out), delivering a service that the locals are willing to pay for and thus increasing the wealth in the economy.

    Phew. Talk about run on sentences.

    But still. The government has raised some revenue which, after administrative deductions, it can spend on welfare. For all those guys who didn’t get the barista job.

  10. Richie wants multinationals to be monitored by a single entity. He would like that single entity to be him.

  11. Thanks Kevin, I’m very familiar w tax incidence. Not the issue under discussion here. I accept some incidence of higher effective corp tax rates could fall on workers.

  12. Kevin B – that’s rather well put. And should be required reading at the grauniad.

  13. Luis

    “And do you think those provisions are sufficient?”

    For the most part yes. Transfer pricing rules and methodologies are designed to tax profits where value is added. For the most part they work. Certainly it is much better than the nutter Unitary Taxation model pressed by Ritchie et al. Thay deliberately excludes intangibles and so excludes the very value that many (most?) businesses spend their time and money trying to create.

    However, GAAR, the BEPS project and the Diverted Profits Tax suggest that transfer pricing rules could do with some updating. Internal interest payments to brass-plate entities are indeed the sort of thing that has driven these projects.

    The jury is very much still out on the GAAR and there undoubtedly will be challenges to the DPT.

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