CinnabarRed's tax thread

[CinnabarRed]

This may be an act of supreme arrogance on my part - if so, I apologise profusely! But it seems that a lot of people have got questions about tax policy and the morality of taxation, which is my professional field.

So this thread is your chance to ask me any questions you have in this general area. I promise to explain what I know, be honest and clear when I don't know the answer, and distinguish between facts (for which I will provide a reference) and my opinion.

So over to you! I'll be back in the morning to answer any questions posted tonight.

PS: I won't be providing taxation advice to anyone!

slhilly, I think that McDonalds moved their European operations from London to Geneva a couple of years ago. A quick google suggests that other companies basing themselves in Switzerland for tax purposes - despite having large offices in London in many cases - include Colgate, Proctor and Gamble, Yahoo, Google, Kraft and Palmolive. UK companies that have admitted leaving for tax reasons include Henderson, Brit Insurance and Regus.

It would be good if a register of companies that were based in the UK but moved the business or part of the business, or production abroad for tax purposes or to use cheap labour were available so people who want to can avoid buying their products.

I for one would never buy a Dyson or Reebok product.

Fair enough if they are opening foreign branches.

Multinationals have no allegiance to the UK and have a choice of where to build a research lab or factory, and of where to base their senior management team, why would they choose a tax environment that makes them uncompetitive? I am sure their shareholders would view it as healthy corporate strategy.

Newwave - I'm racking my brains, but I can't think of a single large company off the top of my head that would fulfil those criteria for every single part of their supply chain. Small UK high tech and biotech companies that have just left the R&D phase and started selling products commercially would probably qualify, or the kind of UK start ups you see on Dragons Den. Of the large mainstream companies the high street retailers and supermarkets come closest, but are not exactly paragons of virtue when it comes to their treatment of suppliers. Some of the pub chains will be OK too, thinking about it. But even they will almost certainly have bank debt provided by lenders which may not fit the bill.

If you want to buy ethically, look for small companies which make a point of local sourcing (sudden thought - funeral directors will meet the brief!).

I've just read my last post back. I'm sorry if it sounds trite, patronising or approving of unethical behaviour. I entirely understand your desire to buy British and Ethical, and in fact I do the same when I can. I just wanted to emphasis how few businesses there are which haven't moved at least one aspect of their business from the developed (high tax high costs) world to the developing (lower tax low cost) world.

What I would also say, though, is that if multinationals move say their manufacturing to a developing country then that isn't necessarily a bad thing overall. It can bring investment, jobs, education and money to placed that really need them - often, if I'm being honest, more than the UK does. Dyson, for example, makes a point of paying its factory workers well above the average wage in the jurisdictions in which it operates (having regard for the fact that paying too far above the odds starts to distort the local economy in damaging ways), provides all kinds of benefits like healthcare that the workers would otherwise struggle to access, and builds its factories to UK standards in terms of safety and pollution (way above local standards). And it can do that at a lower price than in the UK so British consumers also benefit from lower prices.

So I guess where we do disagree is over the fact that I'm comfortable with my decision to buy a Dyson.

The press reports today that Barclays is considering moving its corporate HQ from the UK to NY.

In the interests of fairness I should point out that any such move would not be tax motivated - it's about avoiding compliance with the new EU and UK rules that increase the amount of "safe harbour" capital banks should be obliged to hold.

I know about the taxation of the banking sector, but only have a layman's knowledge of the regulation of it. It seems to me that the banks screwed up royally, and that they should be obliged to hold more capital in the future. So I'm not feeling overly sympathetic towards Barclays this morning.

But if there's anyone out there who knows more, I'd like to hear from you.

Here's an extract from the Telegraph with a bit more detail:

New York mayor hopes Barclays will exit London

The Daily Telegraph, March 31, 2011

New York's mayor has said he would like Barclays to move its headquarters to the city a day after the release of an analyst note suggesting the bank should consider redomiciling. Michael Bloomberg, the city's billionaire mayor, said Barclays moving its main office to New York would be "great for us". "I hope they move here," he told reporters. "Every day, every city in this country and in this world is trying to get those businesses." His comments follow the publication of a report by UBS that said Barclays should consider relocating its main operations out of the UK because of the likelihood of strict new regulations on the banking sector. Mr Bloomberg's comments came as Bob Diamond, chief executive of Barclays, warned that forcing banks to hold more capital would mean nothing unless the lenders have a plan in place to allow an orderly wind?down. So?called "living wills" are crucial to making the banking system safer and must be put in place ahead of meeting new capital requirements, Mr Diamond said yesterday. "For banks that are resolvable, judgment will need to be applied about the level of capital required, so discussing ideal capital levels absent of these plans misses the point," he said. Speaking at a Morgan Stanley?organised event, Mr Diamond told the audience that Barclays was at an "advanced planning stage" of finalising with the UK authorities its own living will should the bank ever need to be wound down.

Oh great! That said, that was always on the cards, given Bob Diamond is an American.

Cinnabar, do you know how much tax UK PLC will lose if Barclays do redomicile?

Best guess? Perhaps £5bn per annum. In the same ball park as HSBC anyway.

Here's my post on the HSBC thread for the calculations:

Last year, total tax revenue collected by HMRC was just a shade under £409 billion. That's income tax, VAT, NIC, Corporation Tax and all the other odds and sods.

My best guess estimate for how much tax HSBC pays across to HMRC is around £10 billion. That's made up of CT, PAYE withheld from employees, employer and employee NIC and irrecoverable VAT.

So around 2.5% of all tax take comes directly from HSBC or from its employees.

If HSBC were to shift to Hong Kong then its UK retail banking operations would stay here, of course, and those would still be tax paying. So you could argue that the £10 billion figure is an overestimate. That said, there would be a knock-on effect for all the other businesses that're reliant on HSBC, so I reckon that around £5bn to £8bn in lost tax is about the right figure.

£8 billion in lost tax is roughly equivalent to increasing the basic rate of income tax by 5p, or 2.5% increase in VAT.

I very much doubt that it would be possible to collect £8 billion per annum from the rich. Have you ever heard of the Laffer Curve? It's the idea that when you raise taxes you collect less that 1p of tax for every 1% rate rise, because the increased tax disincentivises people from making the effort to earn more. That's the reason why the [correction: it was the Adam Smith Institute, not the IFS as per my previous posting] - has calculated that the 50% income tax rate will actually cost the country, rather than raise revenue.

So, in my view, if HSBC leaves the UK we would be screwed.

The problem is that the UK is used to thinking of itself as the only place worth doing business, and hasn't really woken up to the fact that the various pluses of being here (time zone, language, educated workforce, benign income tax regime, etc) are starting to be outweighed by the minuses (poor transport links, high house prices, red tape, somewhat unbusiness friendly corporation tax regime when compared to many other places, etc).

So basically not good at all!

Don't worry though Newwave. Once Barclays & HSBC move, you may well get your dream of seeing all fat cat bankers leave! Unfortunately it will mean less money to spend on the poor & needy but hey....we can tax the rich right?

Woah niceguy2! Please play nicely on this thread. Everyone's entitled to his or her opinion.

I do play nice cinnabar

Newwave & I will probably never agree on any topics but he gives as good as he gets. (or her...thinking about it I'm not sure I actually know!)

On the upside, if Barclays do leave, then we don't have to bail them out. Which may be useful, seeing as they don't want to hold more capital and the banking sector is taking the same risks in the same way as it did before the crash.

Except we didn't bail them out the last time. I guess it depends on if you think another banking crisis will occur or not. Personally I don't think it will.

I wasn't implying that we bailed out Barclays last time. Although they did take part in the SLS. And as I say, the risks are still there, so the chance of another crisis seems pretty high - approaching 1 over time, I'd say, given that there have been banking crises since the invention of banking. Believing that there will be no more banking crises seems to me on a par with Gordon Brown's declaration of the end of the business cycle or the pre-dotcom crash declarations of new economics.

Re: Barclays. Interesting to note that UBS has published a research note that estimates the 231 core staff who run the bank got £554m in 2010, compared to dividends to shareholders of £653m. The shareholders put up £51bn of capital....

slhilly - funny thing but banking appears to be the Marxist dream in that sense. The workers sharing the profits equally with the capitalist owners..

Share the profits, yes. But apparently not sharing the risk....

I'm not saying it's right. But then I'm not a Marxist .

The government 'bailout as back up' needs to be dealt with. Which should reduce the profits. But whether that will change the profit distribution between 'key' employees and shareholders I don't know.

I do wonder what features of the banking industry swings the balance of power so much towards the (top) employees?

I do wonder what features of the banking industry swings the balance of power so much towards the (top) employees?

A self perpetuating oligarchy maybe who run things in their own self interest.

Cinnabar what a fantastic thread. I am a tax professional myself and I find the policy aspect fascinating, but I don't get to do as much of it as I would like these days!

If the unions had done as much damage with their actions as the bankers gambling did the right wingers on here would have been going ballistic yet the same people seem to accept it. We are told dont upset the poor loves or they will sulk and take their ball home.

The bankers have done far more damage than Bob Crow ever can or will but they seem to always be given a "get out of jail free" card.

Next time LFN or others of her ilk complain about a rail strike and the "unions holding the country to ransom" maybe you should consider that the bankers are doing much the same or worse with their "leave our theft bonuses alone and dont your dare raise our taxes.

newwave, I believe there's a rhyme about that: "It's the right what gets the power; it's the left what gets the blame; ain't it all a bleedin' shame"

Bumping, in case anyone's got anything to add?

Hi CinnabarRed - did you catch Richard Turner on R4 PM programme yesterday? He was talking about the 50% tax rate.

He lived up to my expectations of him .

Oops - Richard Murphy.