Business leaders have warned that the tax avoidance debate could be giving an unduly negative impression of British business. Speaking on Jeff Randall’s ‘Christmas Dinner’ programme for Sky News last night, Paul Walsh, chief executive officer at Diageo plc, said there was a risk that the current debate could become ‘Orwellian’. Companies entitled to well-established tax reliefs for losses and capital allowances were investing and creating jobs, he argued.
‘Customers, consumers, want businesses to be doing the right thing, paying their fair share of tax,’ said Jill McDonald, CEO and president for the Northern Europe division at McDonald’s.
‘I think the politicians who are creating the laws need to address and look at those, but I do think [the debate is] in danger of spinning a little bit out of control. You don’t want the conversation to be so negative about business – all businesses being tarred with the brush of not doing the right thing – because business is ultimately what’s important to help Britain grow again.’
Walsh said: ‘We run the risk that this debate on tax could almost become Orwellian – it’s “no tax bad, some tax good”. It’s far more complex than that. We are a global player and we only make a finite amount of profit. But often our product, and its onward packaging and logistics, can touch a myriad of tax jurisdictions. So you have to determine how [profit] is apportioned – you can’t pay tax everywhere.’
He added: ‘What about the company that’s investing billions and will get appropriate [deductible] tax losses and capital allowances? They’re creating a lot of jobs. Be very careful that we don’t get so simplified in our approach that it conspires against what this nation is trying to do – create jobs.’
Offshore
Sir Charles Dunstone, chairman of Carphone Warehouse and TalkTalk, told Randall that a distinction should be made between ‘people who are paying different amounts of tax around Europe and people that are basing themselves in the Cayman Islands or Bermuda or somewhere like that’.
The EU issue was ‘a muddle of the EU’s making’, Dunstone said. But he added: ‘I think someone who has deliberately put themselves in some offshore jurisdiction where they are piling up the cash – I think they have more questions to answer, because that’s actively trying to deprive the whole region of its due tax.’
Last week Google’s chairman Eric Schmidt defended the group’s structure and said its tax planning was based on incentives offered by governments, after Bloomberg reported that Google ‘avoided about $2bn in worldwide income taxes in 2011 by shifting $9.8bn in revenues into a Bermuda shell company’. The Financial Times reported that ‘[Google’s] overseas tax rate of 3.2% has put it at the forefront of mounting political anger about multinationals that shift profits to low tax jurisdictions’. The company had ‘come under fire in France, Britain and Australia for its use of complex structures that funnel profits through Ireland to Bermuda.’
The Ritz
Some tax professionals have expressed frustration over some of the recent reports in mainstream media that have implied avoidance while emphasising that, unlike evasion, avoidance is legal.
The BBC’s Panorama reported on Monday that The Ritz hotel in London had ‘used a series of tax reliefs to reduce its corporation tax to zero’. Tax campaigner Richard Murphy told the programme, whose broadcast had been delayed, that he examined 17 years’ accounts.
‘This is fundamentally a profitable business before interest is paid,’ Murphy said. ‘But they’ve not paid any [corporation] tax at all to the UK government in that period.’
However, the company said it had spent more than £50m on refurbishment. The hotel was bought in 1995 by Ellerman Investments, a private company owned by Sir David and Sir Frederick Barclay, the Financial Times reported.
On Monday The Independent quoted Stephen Boxall, managing director of The Ritz, as saying: ‘I reiterate a previous statement by our owning company that The Ritz is a reputable and law-abiding business and pays the taxes required by UK law. Since the hotel was acquired in 1995, in excess of £50m has been spent on refurbishment, whilst maintaining the standards of excellence and quality. These costs are lawfully off-settable against trading profits. During the period since 1995, The Ritz has not paid dividends to its shareholders.’
The paper reported on Tuesday that Aidan Barclay, who ‘runs the UK operation on behalf of its joint owners the Barclay brothers’, said that profits had been reinvested. It added: ‘Mr Barclay, son of Sir David Barclay, said: "The Barclay family members and their companies abide by the law and pay the taxes required by UK law and the laws of other relevant countries." His father said: "We have always acted in a responsible way with regard to taxation and have never been involved in any tax avoidance scheme."’
Starbucks
Tax barrister Anne Fairpo warned earlier this month that Starbucks' pledge to pay more corporation tax than required by law suggested that ‘bullying by media and politicians’ – rather than the law – would ‘drive tax’.
In a podcast for AccountingWeb last week, Fairpo said Ben Saunders had ‘pointed out that if Starbucks were gaming the system [the company] would be at break-even in the UK’.
Saunders is a business manager at Tolley Tax, part of Tax Journal publisher LexisNexis. He said on his personal blog this week that ‘Starbucks’ accounts paint a very different picture to that given in the national media’.
The group’s current arrangements give a tax charge in the Netherlands and Switzerland, Fairpo said, ‘without a matching tax reduction in the UK’. Deductions ‘for royalties etc’ were generating additional losses, not [immediate] reductions in taxable profits.
It was ‘particularly irritating’, Fairpo said, that some news stories had suggested that HMRC and current tax laws were ‘completely toothless’. HMRC had successfully disputed, and reduced, deductions for royalties paid by Starbucks UK to group companies.
‘Transfer pricing is not just something companies do, it’s an internationally agreed set of tax principles aimed at ensuring companies can’t simply shift profits around,’ she said.
Tax strategies
HMRC is ‘tough but fair’ in policing transfer pricing rules, said Chris Morgan, KPMG’s head of tax policy in the UK. ‘Tax is levied according to law. Starbucks is undertaking to pay an amount even if it has losses. The conclusion must be this is a voluntary payment.’
Writing in Tax Journal, Morgan added: ‘We cannot have a situation where a tax liability is decided according to public opinion and not according to law. But on the other [hand], tax is complicated and often there is no one answer, but rather a range, especially in applying transfer pricing rules. I think companies will need to take more account of the views of all their stakeholders in setting their tax strategies.’
Trading ‘with’ the UK
Sara Luder, partner at the law firm Slaughter and May, said the issues behind the recent ‘outcry on unacceptable tax planning’ were ‘far more complicated than have been portrayed in the mainstream media’.
She wrote in this week’s issue of Tax Journal: ‘Common misconceptions include that tax is paid on revenues (rather than profits), corporation tax is paid by reference to where customers are located (rather than where the business is carried on) and transfer pricing is “tax avoidance”.’
Luder added: ‘Earlier in the year the demand was that UK multinationals should pay more UK tax on their worldwide profits, but the territorial principle of tax is that non-UK profits should primarily be taxed in the regime where those profits are generated. A UK headed group will therefore not pay UK tax on its worldwide profits, but transfer pricing should mean that the UK parent will pay UK tax to the extent it can justify charging foreign affiliates for value that it provides (brands or management services, for example) to the worldwide business. The tax rules for in-bound and out-bound investment need to be consistent.’
Bilateral tax treaties preserve the right of businesses to trade with the UK (rather than in the UK) without being subject to UK tax, she added. ‘In the last decade these rules have been under almost continuous review to ensure they remain relevant for the e-economy, but perhaps the time has come for a more radical reassessment.’
Business leaders have warned that the tax avoidance debate could be giving an unduly negative impression of British business. Speaking on Jeff Randall’s ‘Christmas Dinner’ programme for Sky News last night, Paul Walsh, chief executive officer at Diageo plc, said there was a risk that the current debate could become ‘Orwellian’. Companies entitled to well-established tax reliefs for losses and capital allowances were investing and creating jobs, he argued.
‘Customers, consumers, want businesses to be doing the right thing, paying their fair share of tax,’ said Jill McDonald, CEO and president for the Northern Europe division at McDonald’s.
‘I think the politicians who are creating the laws need to address and look at those, but I do think [the debate is] in danger of spinning a little bit out of control. You don’t want the conversation to be so negative about business – all businesses being tarred with the brush of not doing the right thing – because business is ultimately what’s important to help Britain grow again.’
Walsh said: ‘We run the risk that this debate on tax could almost become Orwellian – it’s “no tax bad, some tax good”. It’s far more complex than that. We are a global player and we only make a finite amount of profit. But often our product, and its onward packaging and logistics, can touch a myriad of tax jurisdictions. So you have to determine how [profit] is apportioned – you can’t pay tax everywhere.’
He added: ‘What about the company that’s investing billions and will get appropriate [deductible] tax losses and capital allowances? They’re creating a lot of jobs. Be very careful that we don’t get so simplified in our approach that it conspires against what this nation is trying to do – create jobs.’
Offshore
Sir Charles Dunstone, chairman of Carphone Warehouse and TalkTalk, told Randall that a distinction should be made between ‘people who are paying different amounts of tax around Europe and people that are basing themselves in the Cayman Islands or Bermuda or somewhere like that’.
The EU issue was ‘a muddle of the EU’s making’, Dunstone said. But he added: ‘I think someone who has deliberately put themselves in some offshore jurisdiction where they are piling up the cash – I think they have more questions to answer, because that’s actively trying to deprive the whole region of its due tax.’
Last week Google’s chairman Eric Schmidt defended the group’s structure and said its tax planning was based on incentives offered by governments, after Bloomberg reported that Google ‘avoided about $2bn in worldwide income taxes in 2011 by shifting $9.8bn in revenues into a Bermuda shell company’. The Financial Times reported that ‘[Google’s] overseas tax rate of 3.2% has put it at the forefront of mounting political anger about multinationals that shift profits to low tax jurisdictions’. The company had ‘come under fire in France, Britain and Australia for its use of complex structures that funnel profits through Ireland to Bermuda.’
The Ritz
Some tax professionals have expressed frustration over some of the recent reports in mainstream media that have implied avoidance while emphasising that, unlike evasion, avoidance is legal.
The BBC’s Panorama reported on Monday that The Ritz hotel in London had ‘used a series of tax reliefs to reduce its corporation tax to zero’. Tax campaigner Richard Murphy told the programme, whose broadcast had been delayed, that he examined 17 years’ accounts.
‘This is fundamentally a profitable business before interest is paid,’ Murphy said. ‘But they’ve not paid any [corporation] tax at all to the UK government in that period.’
However, the company said it had spent more than £50m on refurbishment. The hotel was bought in 1995 by Ellerman Investments, a private company owned by Sir David and Sir Frederick Barclay, the Financial Times reported.
On Monday The Independent quoted Stephen Boxall, managing director of The Ritz, as saying: ‘I reiterate a previous statement by our owning company that The Ritz is a reputable and law-abiding business and pays the taxes required by UK law. Since the hotel was acquired in 1995, in excess of £50m has been spent on refurbishment, whilst maintaining the standards of excellence and quality. These costs are lawfully off-settable against trading profits. During the period since 1995, The Ritz has not paid dividends to its shareholders.’
The paper reported on Tuesday that Aidan Barclay, who ‘runs the UK operation on behalf of its joint owners the Barclay brothers’, said that profits had been reinvested. It added: ‘Mr Barclay, son of Sir David Barclay, said: "The Barclay family members and their companies abide by the law and pay the taxes required by UK law and the laws of other relevant countries." His father said: "We have always acted in a responsible way with regard to taxation and have never been involved in any tax avoidance scheme."’
Starbucks
Tax barrister Anne Fairpo warned earlier this month that Starbucks' pledge to pay more corporation tax than required by law suggested that ‘bullying by media and politicians’ – rather than the law – would ‘drive tax’.
In a podcast for AccountingWeb last week, Fairpo said Ben Saunders had ‘pointed out that if Starbucks were gaming the system [the company] would be at break-even in the UK’.
Saunders is a business manager at Tolley Tax, part of Tax Journal publisher LexisNexis. He said on his personal blog this week that ‘Starbucks’ accounts paint a very different picture to that given in the national media’.
The group’s current arrangements give a tax charge in the Netherlands and Switzerland, Fairpo said, ‘without a matching tax reduction in the UK’. Deductions ‘for royalties etc’ were generating additional losses, not [immediate] reductions in taxable profits.
It was ‘particularly irritating’, Fairpo said, that some news stories had suggested that HMRC and current tax laws were ‘completely toothless’. HMRC had successfully disputed, and reduced, deductions for royalties paid by Starbucks UK to group companies.
‘Transfer pricing is not just something companies do, it’s an internationally agreed set of tax principles aimed at ensuring companies can’t simply shift profits around,’ she said.
Tax strategies
HMRC is ‘tough but fair’ in policing transfer pricing rules, said Chris Morgan, KPMG’s head of tax policy in the UK. ‘Tax is levied according to law. Starbucks is undertaking to pay an amount even if it has losses. The conclusion must be this is a voluntary payment.’
Writing in Tax Journal, Morgan added: ‘We cannot have a situation where a tax liability is decided according to public opinion and not according to law. But on the other [hand], tax is complicated and often there is no one answer, but rather a range, especially in applying transfer pricing rules. I think companies will need to take more account of the views of all their stakeholders in setting their tax strategies.’
Trading ‘with’ the UK
Sara Luder, partner at the law firm Slaughter and May, said the issues behind the recent ‘outcry on unacceptable tax planning’ were ‘far more complicated than have been portrayed in the mainstream media’.
She wrote in this week’s issue of Tax Journal: ‘Common misconceptions include that tax is paid on revenues (rather than profits), corporation tax is paid by reference to where customers are located (rather than where the business is carried on) and transfer pricing is “tax avoidance”.’
Luder added: ‘Earlier in the year the demand was that UK multinationals should pay more UK tax on their worldwide profits, but the territorial principle of tax is that non-UK profits should primarily be taxed in the regime where those profits are generated. A UK headed group will therefore not pay UK tax on its worldwide profits, but transfer pricing should mean that the UK parent will pay UK tax to the extent it can justify charging foreign affiliates for value that it provides (brands or management services, for example) to the worldwide business. The tax rules for in-bound and out-bound investment need to be consistent.’
Bilateral tax treaties preserve the right of businesses to trade with the UK (rather than in the UK) without being subject to UK tax, she added. ‘In the last decade these rules have been under almost continuous review to ensure they remain relevant for the e-economy, but perhaps the time has come for a more radical reassessment.’
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