They are not exempt. Nothing is stopping you from setting up a similar structure. We all play by the same rules globally.
Whether it's cost efficient to do is a different matter.
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.