Skip to content

I do think this is just gorgeous

Over the past decade, tax avoidance by big global companies shifting their profits to low-tax countries has received a great deal of media attention. The Fair Tax Foundation has shown how tech giants such as Apple and Google continue to pay small amounts of tax. A country such as Ireland, with its low corporate tax rate of 12.5%, scoops up much of the money that tech companies make across Europe. Governments have to play whack-a-mole, trying to shut down the tax loopholes that allow this behaviour – with mixed success.

The way the tax system is designed allows some people to pay very low levels of tax, even if it doesn’t strictly count as tax avoidance. A good example is that if you have income from wealth, such as investments or second homes, you pay lower tax rates than if you work for your living. This is why an investment banker can have a lower tax rate than his secretary. Taxing income from wealth at the same level as income from work could bring in tens of billions of pounds a year, according to academic Arun Advani.

And the thing that Palmer and Advani deliberately don’t tell you. Those corporate profits are taxed at two levels, the corporation and upon receipt by the shareholder. The combination of those two taxes is – quite deliberately – around and about, roughly you understand, the marginal income tax rate of the recipient.

This is a problem that is already solved that is.

The other very fun issue here:

Then there is a range of ways in which individuals and companies purposefully slash their tax bills. Some of these methods are illegal – deemed to be tax evasion – and can result in criminal prosecution and even jail. Somewhere in the middle there are ways in which people can use laws in unintended ways to pay less tax – known as tax avoidance. At the other end of the spectrum are deliberate gaps in tax rules that allow some people to pay much lower rates of tax than others.

Indeed so. It’s possible to sell your company without paying capital gains tax on your profits. Without – if I’ve read the rules properly, not a sure thing – even creating a taxable amount in your estate. Which is to sell the company to an employees shareholding trust, an ESOP. You get the money rolling in over the years the ESOP pays off. All entirely and wholly legally, deliberately and specifically put into tax law as a way for expanding employee ownership. It’s not tax evasion, it’s not tax avoidance, it’s the specific way the law was crafted to work. Which is great.

Analysis from the thinktank TaxWatch shows

Ah, yes, TaxWatch, funded by Julian Richer who sold Richer Sounds to an employee trust and therefore paid no CGT on the receipts from that sale.

I agree entirely that this is wholly and entirely legal and is exactly the way the law was written to work. It just does make me giggle tho’.

9 thoughts on “I do think this is just gorgeous”

  1. Somewhere in the middle there are ways in which people can use laws in unintended ways to pay less tax – known as tax avoidance

    For example the Scott Trust Ltd which, as I pointed out yesterday, last year paid UK corporation tax at a rate of 0.127% of its profits.

    Another day another “do as we say, not as we actually do” article in the guardian.

  2. According to The Guardian, operating under the laws of Spudland, any money that you actually retain has avoided being confiscated by the government, and hence must be the result of tax avoidance (if not evasion). Hope that clears this one up.

  3. So, big corps. don’t pay enough tax – and yet:

    Ireland, with its low corporate tax rate of 12.5%, scoops up much of the money that tech companies make across Europe.

    Which is it; they don’t pay enough tax, or they’re paying it to the wrong people?

  4. I rent out a shop. The money I receive from that is taxed at exactly the same 20% as the money I receive from my employment. Lies from start to finish.

  5. In the States, if you sell to an ESOP and then invest the proceeds in “qualified” securities (pretty much anything on a listed market qualifies), then the proceeds are not immediately taxed. As you sell those securities they can be taxed. If you die before eventually liquidating those investments your heirs can inherit subject to estate tax rules.

    Some people are also using the funds in their retirement 401k plans to purchase a business, effectively making their retirement plan the owner of the business. Income can be sheltered from taxes and when they eventually sell the business the taxes are only paid as funds are withdrawn from the plan.

    Peter Thiel famously bought his startup shares in PayPal through a ROTH IRA on which the gains are never taxable, or at least under current laws, and he accumulated billions in his ROTH. He did, however, rollover monies from other retirement accounts at the time so as to be able to buy the shares and would have paid taxes on what he withdrew from those accounts.

  6. Is Tim the Munificent saying the system is rigged?

    What if I think camping in the woods, learning from observation of raw nature, is more fun than learning how to negotiate a rigged tax system? Should I be shut off access to commons and forced to learn crapitalism, because … control?

  7. “I rent out a shop. The money I receive from that is taxed at exactly the same 20% as the money I receive from my employment. Lies from start to finish.”

    Thats not true though is it? The income you receive from employment is taxed at 32% (marginally), because there’s 12% NI contributions on it as well as 20% income tax. Whereas the income from rents does not attract NI. So the tax rate for income from employment is well over 50% higher than the rate for ‘unearned’ income.

Leave a Reply

Your email address will not be published. Required fields are marked *