The recent flurry of allegations of corporation tax avoidance, which appear to be based on what HMRC has called an ‘expectation’ gap, seems to have drawn very little reaction so far from tax professionals.
Some commentators have suggested on Twitter and in blogs that press reports are ignoring the significant differences, set out in long-established tax law, between profit based on accounting principles and profit for tax purposes. Some maintain that there is little or no evidence avoidance of UK tax, because the law allows – subject to anti-avoidance rules – deductions for payments such as royalties and interest paid to group companies.
‘[The] report that Starbucks has paid just £8.6m in taxes on a reported £3bn in UK sales since 1998 is a classic example of the nonsense that is becoming all too familiar. It really is tax analysis straight from the kindergarten,’ said Cormac Marum, head of tax advisory for chartered accountants Harwood Hutton, writing in Accountancy Age.
However, the recent reports have implied criticism of corporation tax law itself, even if that criticism has not always been immediately clear. Today’s Daily Mail report said: ‘It would be unfair to charge tax without first deducting legitimate expenses; the problem is that the figure booked in a company’s accounts for profit can be subject to all manner of adjustments that result in a tax bill that seems disproportionately tiny compared with the sales numbers.’
Responding to The Guardian’s Tax Gap series in February 2009, Michael Devereux, director of the Centre for Business Taxation at Oxford University, and Judith Freedman, professor of tax law at the university, said the tax system was ‘full of artificialities and complexities’.
‘The focus should be on improving the tax system by thoughtful, radical reform, rather than throwing accusations at corporate taxpayers when they are behaving legally within the current structure,’ they wrote under the headline ‘The system must change’. Freedman suggested last week that the article was ‘worth another airing’.
Writing in yesterday’s FT Nigel Boardman, a partner at lawyers Slaughter and May, said ‘countless hours of many of the best brains in Britain’ were devoted to understanding one of the longest tax codes in the world. ‘If those brains could be freed to do something useful, it would surely be more productive – and they could be if we moved to taxation based on accounting profit, with a wide-ranging rule against avoidance,’ he said.
Campaigners such as the Tax Justice Network, backed by several charities and other NGOs, have been lobbying for reform of corporation tax for many years. At the weekend a Financial Times editorial said public anger over exploitation of loopholes ‘might equally be directed at the tax system itself, especially the way it treats multinationals’.
As Tax Journal reported on Saturday, the editorial said current practice had turned tax into ‘a largely voluntary gesture’ for multinationals. ‘It is all too easy to shuffle income off to low-tax jurisdictions through intra-group debt financing and the transfer pricing of intangibles such as intellectual property.’
Deborah Meaden, the entrepreneur from BBC’s Dragons’ Den, was quoted in The Times last week as saying: ‘If you earn cash in this country, you should pay tax in this country. Big corporations earn profits from this country. If you earn profits from this country, you should do your bit. I want to live in a nice country and that comes at a price. Wealthy people can afford to pay.’
Tax Journal has invited the big four firms of accountants to comment on the recent press stories.
The recent flurry of allegations of corporation tax avoidance, which appear to be based on what HMRC has called an ‘expectation’ gap, seems to have drawn very little reaction so far from tax professionals.
Some commentators have suggested on Twitter and in blogs that press reports are ignoring the significant differences, set out in long-established tax law, between profit based on accounting principles and profit for tax purposes. Some maintain that there is little or no evidence avoidance of UK tax, because the law allows – subject to anti-avoidance rules – deductions for payments such as royalties and interest paid to group companies.
‘[The] report that Starbucks has paid just £8.6m in taxes on a reported £3bn in UK sales since 1998 is a classic example of the nonsense that is becoming all too familiar. It really is tax analysis straight from the kindergarten,’ said Cormac Marum, head of tax advisory for chartered accountants Harwood Hutton, writing in Accountancy Age.
However, the recent reports have implied criticism of corporation tax law itself, even if that criticism has not always been immediately clear. Today’s Daily Mail report said: ‘It would be unfair to charge tax without first deducting legitimate expenses; the problem is that the figure booked in a company’s accounts for profit can be subject to all manner of adjustments that result in a tax bill that seems disproportionately tiny compared with the sales numbers.’
Responding to The Guardian’s Tax Gap series in February 2009, Michael Devereux, director of the Centre for Business Taxation at Oxford University, and Judith Freedman, professor of tax law at the university, said the tax system was ‘full of artificialities and complexities’.
‘The focus should be on improving the tax system by thoughtful, radical reform, rather than throwing accusations at corporate taxpayers when they are behaving legally within the current structure,’ they wrote under the headline ‘The system must change’. Freedman suggested last week that the article was ‘worth another airing’.
Writing in yesterday’s FT Nigel Boardman, a partner at lawyers Slaughter and May, said ‘countless hours of many of the best brains in Britain’ were devoted to understanding one of the longest tax codes in the world. ‘If those brains could be freed to do something useful, it would surely be more productive – and they could be if we moved to taxation based on accounting profit, with a wide-ranging rule against avoidance,’ he said.
Campaigners such as the Tax Justice Network, backed by several charities and other NGOs, have been lobbying for reform of corporation tax for many years. At the weekend a Financial Times editorial said public anger over exploitation of loopholes ‘might equally be directed at the tax system itself, especially the way it treats multinationals’.
As Tax Journal reported on Saturday, the editorial said current practice had turned tax into ‘a largely voluntary gesture’ for multinationals. ‘It is all too easy to shuffle income off to low-tax jurisdictions through intra-group debt financing and the transfer pricing of intangibles such as intellectual property.’
Deborah Meaden, the entrepreneur from BBC’s Dragons’ Den, was quoted in The Times last week as saying: ‘If you earn cash in this country, you should pay tax in this country. Big corporations earn profits from this country. If you earn profits from this country, you should do your bit. I want to live in a nice country and that comes at a price. Wealthy people can afford to pay.’
Tax Journal has invited the big four firms of accountants to comment on the recent press stories.
