UK Chancellor – “Google Tax” on Diverted Profits to Come into Effect Next Month
techcrunch.com
techcrunch.com
Whether or not this is the best way, or perhaps it should be a more international process through the OECD, it's obvious that it's not sustainable for companies to off-shore their profits, and pay very little corporation tax, often even in their home country. Especially when in so doing they undercut the small businesses that don't have the lawyers and accountants to set up these kinds of highly artificial schemes.
Amazon - or its customer, actually - pays for the delivery of goods on the said roads. That delivery price pays, among other things, for the wear and tear of roads, more than enough.
Price of delivery includes the cost of vehicle deliveries (and employment needed by those delivery services, etc) and those costs include the taxes, duties and tolls collected from vehicles.
I don't know situation in Britain so well but I expect that it's like other countries: the taxes collected from vehicle traffic are much higher than the cost of building and maintaining roads. (In my country, the factor is 7: government collects 7 000 000 000 € per year from vehicle traffic as car taxes, fuel duties etc, and uses about 800 000 000 € per year to building and maintaining public roads.)
I just cannot follow the logic of the above argument. A more logical approach to me is "they've got money, let's take it!"
Unless the delivery company is also paying some sort of branding royalty payment to a brass-plate in Luxembourg, in which case you have to fall back onto consumption taxes, and the regressive nature of that mechanism.
In any case, the roads are only one, er, concrete example; the profitability of a company like Amazon, or even its simple ability to operate, relies on a whole swathe of services which are provided to companies and to citizens through the government.
Beside roads the environment includes, law and order services, maintenance of military, funding of research by universities, public/partly private education system, communication services, health care services etc.
Also if I am a small corporation in UK, I have to pay my fair share of taxes, why should the multi billion giants be exempt from it?
Whether it's cost efficient to do is a different matter.
As long as the rates are not unified globally, there will always be a reason to avoid tax. And for multinationals, there will always be an incentive to do it, because they have massive scale. A 0.1% tax difference might mean millions to them, and it might mean only £100 to you. If the difference is millions, why not set up a small office somewhere?
Let’s say you are a ‘tiny’ multinational. You own two shops, one in the UK (20% CT) and one in the France (33% CT). Both shops operate under the same brand. You own the IP rights to the brand. The sane thing to do here is to have the UK entity own the brand rights, because then you can charge a royalty (say, ~1% of turnover) to your french company.
Some people call this avoidance, and not paying your fair share. Sure. But, one company actually owns the rights and the other doesn’t. Should that be a “free” transaction? If you were to license your brand to a third party company in Dubai (not related to yours) to set up another shop, would you also give this for free? That’s part of where the problem lies. Also, if the brand rights would be owned by the french entity, the UK might (will?) now charge a sort of diverted profit tax. For diverting 'profits' to a higher tax country.
Disallowing a deduction because some other connected entity owns the brand is not right, because that means you'd be getting the brand for free. You'd actually be paying tax on a profit that did not exist in the first place. Overcharging for brands has never been allowed. Before this DPT tax, it was not allowed either.
Now image a large multinational. Luxembourg, for example, charges a net tax rate of ~5% on IP income. I charge the same royalty as tiny multinational. That 1% just became a whole lot bigger. And yet, that’s probably the correct value of the brand. Think about it this way: if you take off the brand, how many units would you sell? That one percent might be tens of millions for a large multinational company.
As companies grow in scale, so do their synergies and advantages. Lower tax is one of them, paying less to suppliers is another as is the ability to increase prices.