It’s a quite gorgeous throwing of the teddy out of the pram as well:
Most multinational businesses are not single companies, but a group of companies, only some of which will be operating in the UK.
For example, sometimes a company from outside the UK sells to UK customers via the internet. Another group company in the UK provides warehousing, distribution or other services and support to the selling company. Where this takes place, the UK service company will be taxed only on the profits of its own business, ie the services it provides to the selling company.
This is not tax avoidance: it is simply the way that Corporation Tax works, ie it applies to individual companies.
Let’s be blunt: such an arrangement is only adopted for one reason, and that is to avoid tax. There is not another motive on earth that can or might justify such an obscure structure, despite which HMRC say this is not tax avoidance. It is instead ‘simply the way that Corporation Tax works’.
But as Jolyon points out, and as I agree, that definition is utterly at odds with the new definition of what is not tax avoidance when the new definition of what is not tax avoidance now effectively says that whatever interpretation can be applied to the law, irrespective of motive or artificiality, just is how corporation tax now works and, as a consequence to be accepted. This effectively defines avoidance out of existence.
Worse, this claim is not true. This revives The Duke of Westminster case as well as Ayrshire Pullman and even Partington which were the foundation stones of UK tax abuse for so many tears until Graham Aaranson, I and a few others hoped we had consigned them to history via the Guidance Notes to the General Anti-Abuse Rule, which specifically say that they have no role in modern UK tax law (pages 5 and 25). Except now HMRC seem to say they have.
So let’s make three things clear. HMRC’s comments here are wrong because they are contrary to the GAAR guidance, which has the force of law.
Second, they’re wrong because their own guidance on tax avoidance says they are.
And third, in offering them now HMRC needs to make clear a) why it has done so b) what pressure was brought to bear on them to do so c) state why they think their tax gap measure has any credibility remaining after doing so when they are now the only people in the country who think that the activity of companies like Google are tax compliant.
And if the Board cannot get adequate explanation as to why this has happened the whole top management of HMRC needs to be removed. Lying about tax is unacceptable, especially when done by a tax authority, and that is what is happening here.
So, will Ritchie fire himself because lying about tax is a terribly naughty thing to do?
Here is the current state of the law. This is from the Luxembourg UK tax treaty but all the others are very much the same:
(1) For the purposes of this Convention, the term “permanent establishment” means a
fixed place of business in which the business of the enterprise is wholly or partly carried
(2) The term “permanent establishment” shall include especially:
(a) A place of management;
(b) A branch;
(c) An office;
(d) A factory;
(e) A workshop;
(f) A mine, quarry or other place of extraction of natural resources;
(g) A building site or construction or assembly project which exists for more than
(3) The term “permanent establishment” shall not be deemed to include:
(a) The use of facilities solely for the purpose of storage, display or delivery of
goods or merchandise belonging to the enterprise;
(b) The maintenance of a stock of goods or merchandise belonging to the
enterprise solely for the purpose of storage, display or delivery;
(c) The maintenance of a stock of goods or merchandise belonging to the
enterprise solely for the purpose of processing by another enterprise;
(d) The maintenance of a fixed place of business solely for the purpose of
purchasing goods or merchandise, or for collecting information, for the
(e) The maintenance of a fixed place of business solely for the purpose of
advertising, for the supply of information, for scientific research or for similar
activities which have a preparatory or auxiliary character, for the enterprise.
This covers what Facebook, Google, Amazon and all are doing. And HMRC is not allowed to operate against such international tax treaties because they are, quite literally, the law of the land as agreed to by Parliament.
What’s actually going on here is The Murphaloon deciding what he thinks people should be paying in tax and then getting upset when reality doesn’t agree.