Welsh village adopts multinational tax tactics
independent.co.uk
independent.co.uk
That you can (for example) register a company in a single jurisdiction and only pay tax there, and the whole transfer pricing thing are not oversights or loopholes, they are the point and purpose of the law.
Now, one may in good conscience take a position that this should not be so - though that amounts to an argument for leaving the EU - but tax activists make fools of themselves by insisting that companies behaving in ways the EU explicitly intends them to behave are somehow cheating.
If any of the Welsh traders sold goods or services into another EU country they would themselves automatically be using the same 'loophole' by only being taxed in the UK. This happens on purpose.
Modulo VAT MOSS which is just stupid.
Whether it works or not you know the Government (of any colour) will start to get scared when these tactics get down to the level of small businesses.
So far, sounds like a good deal right?
Until you try to invoice anything outside of the EU! In that case, you /can't/ add 20% to the invoice (as it doesn't apply) But you still need to pay 13.5% of that to HMRC! I'm not joking -- it's a nightmare -- it means that you can't do business oversea at all, or have to leave the scheme which implies extra overhead+costs of a full fat VAT return.
When you see such a /simple/ user case being overlooked (in this case, against the tax payer), can you imagine what other holes there must be in the system?
No the only technical solution is either to do the full fat VAT, or, play the megacorp and keep the money outside of the country. In a way, it's not difficult to see why bigger companies would do that when you get into a knot like that. I'm just too honest :-)
Items outside the scope of VAT do not count towards your flat rate turnover (https://www.gov.uk/government/publications/vat-notice-733-fl...).
At least, that would be my excuse ;)
Perhaps I need to add that this is not professional advice?
I'm honestly a bit surprised, come to think of it, that all supermarket sales aren't actually accounted as online orders from a webshop hosted on the Isles of Man with express delivery from warehouse at the customer's location. Then the sale would be on the Isle of Man, and VAT would be correspondingly low.
Of course it's not intended (or, if you're cynical, ideal) that companies should be allowed to shift profits to tax havens and subsequently pay no tax. It's a loophole. Duh. Yes, there are justifications for the laws as they are, but the implementation is being abused so hard that it's essentially more of a loophole than a sensible set of laws.
To the EU's credit there's been some talk of solving the problem through "tax harmonization", although I think that's the wrong way to solve it and also very unrealistic.
Given majority of food types are already zero rated for VAT what is the benefit to either the supermarket or consumer?
Focusing on the legal technicalities of what constitutes tax evasion/avoidance is kind of missing the point. The rule should be that you pay tax in the country that you earned the money, based on the tax laws of that country. Any games that involve laundering earnings through foreign subsidiaries in order to avoid paying tax that would be owed based on the tax laws of the place where profits were made is tax avoidance. I do not care whether laws have been put in place to encourage tax avoidance, that does not excuse the behavior.
So now instead of following one tax code and dealing with one tax authority you have to deal with 28. The whole point of EU is to cut down on stuff like that and reduce the cost of doing business between members.
Trade harmonisation is one option a government can pursue, but the more you follow this path the further you give up the autonomy of the member state, in this case it's debatable whether the medicine is worse than the disease.
Should also point out that despite the harmonisation goals of the EU, tax avoidance still occurs within the EU by exploiting differences that exist, such as the infamous Double Irish with a Dutch sandwich:
http://www.investopedia.com/terms/d/double-irish-with-a-dutc...
Except that increases the cost of doing business even further. The whole point of EU was increasing and simplifying trade and creating a open market so that Europe can be more competitive.
Yes, but there's a tradeoff at play here between what's best for companies and what's best for the citizens of each of the countries. If a law protects the will of the citizens but also hinders companies then so be it. Company profits are not the be-all and end-all.
It's like the arguments against the Australian MRRT for the mining industry - a tax that only kicked in if you were making 5% or more profits[1]. "The miners will go to other countries!" was the shrill cry from the mining industry. Uh, no they won't, and not just because the resources are physically here. As long as it's still reasonably profitable, companies will keep doing business in a location.
[1] In a monumentally bad bit of PR, the initial public-sell name for the Minerals Rent Resource Tax was... drumroll... the Super Tax.
Let's say you concoct a scheme (pretty sure this is typical) where you have the artwork for a movie actually done in the UK, but on paper, you write it up like your selling the British workers' output to Luxembourg, then having the latter work on it, then buying it back into the UK at a huge markup.
Certainly, to an expert, it will be obvious that it's a sham to say any art was produced in Luxembourg. But this would have to be a distinction that can be seen by a tax accountant. All they see is, "Lux bought IP, UK bought their IP, seems legit".
Edit: rewrite for clarity
(Also just rewrote the example btw.)
So if the companies are linked through their owners, could we not have more restrictions placed on sales made between companies that have the same/related owners? Could government bodies oversee such sales to check for market manipulation?
Doing this cross-border becomes extremely difficult, unless you set up an EU-wide body charged with doing that, and you integrate databases, and before you know it, you have an EU body tasked with enforcing EU-wide fiscal policy, and somebody will have to set that policy, and a real EU government will be born.
I would all be in favour of that, tbh; but I don't see it happening anytime soon across 28 countries.
1) Some companies move profits to very low tax cuntries outside the EU. For example Starbucks in the UK bought coffee beans in from a subsidiary in an offshore country at very high prices so they can claim very low profits in the UK, moving most of them offshore where they pay very little taxes
2) Other companies like FCA and Apple instead are accused of having stuck deals with EU governments (Luxemburg and Ireland) where in exchange of having their HQ there they would get to pay very low taxes which other than being morally questionable (in my opinion) is possibly illegal because it amounts to state aid since other companies don't get the same treatment
P.S. You might want to edit line 1 of point 1. ;-)
It's an absurd situation that the law explicitly allows something that's continually covered in the press as immoral, and to have governments complain about the status quo through the press, instead of changing the law which is what they're empowered to do.
So yeah, I hope everyone does the equivalent of registering in in Luxemburg, because that'll force a resolution to the issue. Either we say that's OK and that becomes the new norm, or we fix the tax code.
I do agree that you can have situations where there's no law covering something (because of its novelty etc.) and someone exploits that to their own gain in a way that's malicious to society.
The tax law is not such a law. There's few things that governments put as much effort into as their tax laws. Have you seen the sheer volume of it for most developed states? You could print it out, drop it on someone's head from a modest distance and stand a good chance of killing them.
What is absurd, and what I'm objecting to, is that the government clearly knows what it's doing with tax law, and what it's getting itself into. Yes there will be unintended loopholes, but if they keep getting exploited noticeably year after year without getting closed they're not really loopholes are they? They're there by design.
What various countries in the EU are doing when it comes to their tax rhetoric is absurd and disgusting. Their politicians are badmouthing individuals and specific corporations who are in full compliance with the tax code for not doing their part, while not exercising their power as legislators to actually fix the situation that they're complaining about.
They're doing this because it gains them cheap political points from a certain part of the electorate, while taking money from those same individuals and corporations that are exploiting these "loopholes".
So yes, it is absurd and not morally right. But the politicians are being immoral in singling out individuals in the court of public opinion while making no effort to actually fix the issue, and it's absurd that some members of the public are eating up this obvious publicity stunt of theirs.
What are you supposed to do as a business owner in this climate of political sniping? Cave in to public opinion and pay higher taxes, and subsequently get replaced by a more tax optimized competitor that doesn't pay the same attention to bad press?
I love the idea too, we were just discussing how the .gov is trying to squeeze the IT contractor field, while at the same time still leaving the obvious loopholes used by the megacorps to screw the system.
Seems that the lobbyists of the megacorps are still earning their keep...
It's like with the tax credits thing at the mo - I think people would stomach the cuts more if the government was as ravenous about squeezing large multinationals as the smaller guy.
So I wonder: why don't more companies do this? I can see that for mass produced cheap trinkets the 20% would not be profitable vs how much cheaper it is to produce in China; but say for high-end furniture, manufactured in the EU. Why don't they just 'sell' from their online (US, or Hong Kong for all I care) shop which would give them a legal 20% advantage?
Furniture? Good idea. I don't know what "high end" means but the shipping costs are likely going to kill you.
On the other handL I shipped once a pallet from LA to Germany via Airfreight. If you use a small provider, costs are quite low. The provider buys a kg air freight US<>Europe around 1 US$ and resells it to you with a mark up. Still, you have to clear customs and have to get it to the airport and then again from the airport. Funny thing: The company who delivered it for me to the airport included a bill for their services. It was only for finalizing the product that I shipped to them. The EU customs charged him import taxes based on that bill, not mine. Hence my customer saved a shit load of money.
Within the EU? True. But who has left money in this hyperfragemented market? Many different languages, regulations, power supplies.
It is easier for Germans and Italians to sell to Americans than to each other (at least B2C).