tax havens for FTSE 100 - I'm disgusted

[smearedinfood]

I read this in the news this morning, I find it so abhorrent, how can we have so many cuts in the public sector when we are so shit at collecting tax..!

Happy to discuss

www.independent.co.uk/news/business/news/british-firms-attacked-for-routine-use-of--tax-havens-2368753.html

Yes. The SNP wants DT money. Money = power, even (especially?) in a democracy. DT is too powerful, but it isn't his fault, maybe. Although he could use his power in a better way.

So he wants a bit of Scotland? What is wrong with that aspiration? It's the Scottish government that made it possible for him.

This is not so much about a corporation but about an individual. I imagine the shareholders of his companies would have preferred him to build his golf course in the USA.

The UK at the moment isn't the most welcoming place tax wise for any size of company but particularly small to mid size entrepreneurial businesses. If they can be savvy and move their HQ's to a 'tax haven' eg switzerland (incidentally not much better tax rates for the individual but better tax incentives for businesses) and continue to employ many people in the UK then surely that's preferable than going bust. More unemployment, debt etc etc.

This article, like many others I've seen in the last few days, is rather simplistic. Some companies would almost feel that they've been pushed out of the UK in order to survive. Times are tough.

Unless of course you really do have zillions stashed away in the vaults of Bahamas!

'So he wants a bit of Scotland? What is wrong with that aspiration?'

My point is exactly that: the Scottish government made it possible for him because they wanted his money. But they're not getting his money, are they? And nor is anyone else.

My point is that it is not democratic for a government to sell off the land to overseas companies when the local council have voted against it. The local people didn't want it!

But you can't blame Trump for being granted planning permission for his enterprise.

What does this have to do with FTSE companies mitigating taxes?

The way most large UK firms avoid tax is very simple. They use a process called transfer pricing.

Lets say they make a product for £100 and sell it for £150 making a £50 profit.

They dont pay UK tax on the £50 profit though. What they do is sell the product to a marketing subsidiary in a tax haven for £100 (ie just covering the cost of manufacture) and then that subsidiary sells it for £150 to the eventual customer. The marketing subsidiary collects the £50 profit in the tax haven which charges the subsidiary little or no tax.

Most international businesses do this - not just UK firms.

I don't blame DT (see above). Hijack over - sorry.

MoreBeta - that isn't how transfer pricing works. HMRC have broadened transfer pricing rules to not only cover UK-non-UK transactions but also UK-UK.

Businesses have to demonstrate that they are selling to connected parties at third party rates. The company may well only sell for £100 but for tax purposes they would have to reflect the third party rate of £150 - so no tax avoided there.

if they don't do this then they are evading tax.

Companies spend a lot of money getting their transfer pricing right because HMRC are actually very into this and making sure multinationals comply.

I thought that more likely a company would manufacture a small part of their product in a low tax zone, and sell it back for final assembly with a large on cost. Hence, the profit is generated in a lower tax region, and final sale in a higher tac region but with no profit.

This is simple market economics. If a country wants tax revenue, they have to be competitive with their rates.

Yes the obvious "solution" here is to have a competitive tax rate which is simple to understand in the first place, rather than lots of special rules which inevitably leads to loopholes.

Of course some will argue its a race to the bottom but that's wrong. No-one says you have to continually be at the bottom, just be competitive.

Right now we're scaring companies & individuals off coming to the UK and that can't be a good thing can it?

Yes - tax can also be used to attract certain industries

eg the R&D tax credit was brought in to try and encourage innovative businesses to set up here thus causing employment for our many science graduates etc

MindtheGapp - TP rules wouldn't let that work either. The sell back price would again be compared to third party rates.

If you look at some Italian shoes, they are made in China dirt cheap and then the leather is put on in Italy. this isn't for tax reasons - this is so they can stamp it 'Made in Italy'. pure marketing.

Companies would be stupid to make decisions purely on tax grounds.

I know someone who was complaining about a company that made a loss and were able to carry it forward to set against profits of the following year thus not paying tax in either year. What they failed to realise was that the cash flows meant the company made a real loss regardless of the tax saved!