The competition commissioner, Margrethe Vestager, has announced an investigation into the UK government’s “controlled foreign company” rules, which were altered by George Osborne in 2013 to exempt multinationals from anti-tax avoidance measures. The European commission believes that the UK’s CFC rules give an unfair advantage to multinationals over UK companies with no foreign subsidiaries. Osborne’s rule change may be costing HMRC around £800m a year, according to its own estimate.
It’s worth pondering quite why the CFC rules were changed. Because Cadbury, and by strong implication Vodafone, showed that the UK’s CFC rules were illegal under EU law.
Which is fun, isn’t it?
And this is even better:
Country by country financial reporting, with tax paid where revenue is generated, might help clear up some of this fiscal and moral mess. We need to put an end to the excessive jiggery-pokery of transfer pricing and aggressive tax avoidance.
Country by country reporting depends for its very existence upon those transfer pricing rules. Otherwise, how can you allocate revenue or costs to a specific location?