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Source: http://www.roryridleyduff.com/inthepress.htm#704153999

 

Ending Barclays' Tax Avoidance

In light of the most recent revelations that Barclays Bank believes it is acceptable to pay only 2.5% corporation tax on its earnings, can I request that MPs sponsor a private bill.  This new bill would allow taxpayers in this country (individually or collectively) to apply to the courts to remove the 'legal person' status of an incorporated organisation if it pays less tax (as a % of its earnings) than a basic rate tax payer.  Charities would be exempt.
 
The Act can empower the courts to grant other legal and natural persons a right to recover the balance owed and transfer it to named local authorities, government departments, charities, industrial and provident societies (IPS) or community interest companies (CIC).  Secondly, without 'legal person' status, a corporation cannot own property.  The courts, therefore, can accept applications to transfer property to the value of the balance owned to incorporated organisations that pay tax at the same (or greater) rate as a basic rate tax payer.  This way, the vast amounts of tax owed by out-of-control corporations (25.5% of earnings in the case of Barclays) can be allocated by taxpayers to the public services, social enterprises and socially responsible businesses worthy of their support.
 
What better way to breath life back into the concept of the Big Society?
 
- Open letter to National Newspaper Editors, 19th February 2011

 

Thoughts?  Comments?

 

 

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Banks often cite moving abroad as a possible result of tightening up against them, but surely full corporation tax on the domestic business would amount to more than what they are paying?

 

Words fail me, im flabbergasted that the system can be this skewed

Yes - and large corporations too.  The other night a spokesperson for the Institution of Directors debated with a member of Uncut, and tried to make out that if corporations were expected to pay their taxes, they will end up recovering about half the money from employees and customers....

 

Hang on a minute....corporation tax is paid on profits.  This is the surplus after labour has been remunerated, and after consumers have paid all their costs.  All their costs have already been covered.  What is more, contributors of labour have already paid their taxes.  Consumers have already paid their taxes.  If corporations are in a frame of mind to think they can recover their corporation tax contributions through further reductions in labour and further price rises, it amounts to a private system of taxation in which employees and consumers have to pay twice (once to the state to support a political elite, then again to private enterprise to maintain a business elite).  We have to make the argument in a way that makes comments like this politically, morally and legally indefensible.

 

Best wishes

Rory

Without legal person status a corporation cannot do anything. It cannot enter into contracts, employ people, sell anything. Far too complicated and unnecessary.

You could try turning corporations into Partnerships, without limited liability. This would make the shareholders themselves directly responsible for the obligations of the trading partnership. The shareholders would then probably be taxed on the profits themselves, although in very broad terms they would be taxed in the same way as the corporation was originally (both would get loss relief, both would get foreign tax credits). This would also have the benefit of closer aligning ownership with risk, as the Ltd Liability of a company undoubtedly reduces the shareholder risk.

For the tax question - A simpler alternative is to impose a Minimum Alternative Tax, perhaps 1% of turnover. Corporations would pay the higher of the standard rate and the Mimimum Alternative Tax. Easy peasy.

However, any laws that are introduced would & should also apply to our own precious CICs, or to your friend's small local businesses. So your struggling start-up business making no money but just about breathing on Grants, would have to hand 1% back to HMRC regardless.

Incidentally, I completely support Barclays that to compare their UK tax with their Global income is inappropriate. It is like comparing apples with an iPad. Nonsensical.

Yes - the loss of limited liability would be a big disincentive.  However, there would have to be a transition period where the legal entity would exist (without legal person status) so that claims can be brought against it to recover the unpaid tax.  The loss of 'legal person' status would stop the company in its tracks if it lost a case brought against it so - in my view - it would be effective precisely for the reasons that you mention above.  

After the claims are paid, by all means allow it to convert to a partnership and make shareholders directly liable.  I really don't care what system is used so long as it has the teeth to end tax avoidance and return the monies denied to the public back to the public.

And yes, this system would have to apply to CICs and other social enterprises registered as CLGs and CLSs.  Personally, I would not advocate the 1% turnover fee because this would severely (and unreasonably) punish non-profits.

As for Barclays, it is possible to find out the earnings of their UK registered companies (albeit retrospectively).  I can retrieve financial information on all their UK registered companies using the Fame company database at my university (albeit only up to their most recently filed accounts).  The issue, however, is described reasonably well in the following press article:

Vodaphone Tax Case Leaves Sour Taste

The article uses the phrase 'effective tax rate' - a useful concept, perhaps.

Best wishes

Rory Ridley-Duff

Sheffield Business School

www.roryridleyduff.com

 

The Vodafone article seems to be arguing 2 points:
> That HMRC cut a deal that was unfair, despite the author not knowing any of the detail of the tax at stake or even whether the £6Bn was an accurate number. It must have been a border-line case for HMRC to not have taken it all the way.
> That the use of tax haven's is unfair in some way

Using a tax haven for tax avoidance is legal but heavily regulated by every tax jurisidiction in the world. There are rules to try and ensure that profit earned there is commercially appropriate and justifiable. This is known as Transfer Pricing. Of course for every Tax Inspector trying to crack down on abuse of these positions there are 3 better paid and probably cleverer people like me trying to make use of them.

On the other hand, in this country we have state-sanctioned tax haven's known as ISAs (amongst other things). 'Rich People' can put money into an ISA and earn profit tax free. Poor people cannot, as they don't have any money to invest in the first place.

Is an ISA fair? I have an ISA, therefore my Effective Tax Rate is lower than some of my Peers. Am I morally reprehensible? Or is it Ok because we're only talking a few £s rather than £Ms? What sort of outcry do you think there would be if ISAs were shut down?

Tax 'Fairness' is an extremely complicated beast
Alistair,

The comparison you make is not a fair one. The money that you and I put into an ISA has already been taxed once (it is the money we have left after we have paid national insurance and income tax). The money that large companies are putting into their tax havens is to avoid paying any tax at all on their earnings so you need a better comparison if you are going to argue that ISAs are an 'unfair' as the practices of large corporates.

On the Vodaphone front, my understanding is the HRMC had already won the case and were chasing the full amount, but Vodaphone - through their expensive lawyers skills - managed to delay settlement until after the election. Once the election put the Tories into power (albeit through a coalition) the instruction to the HRMC changed and a settlement was agreed that infuriated people at the HRMC who had already won a court case, but not been able to secure the money. I can't remember where I read this now, but I can try to find it if you wish.

So - the point about the Vodaphone case is that even after big companies have lost court cases and are instructed to pay the taxes they owe, they still resort to yet more (political strategies) to avoid paying. If - as Barclays claims - they paid nearly £3 billion in taxes (by which they mean that their staff paid nearly £3 billion in income tax, not that the corporation paid its share), it still begs questions about what they have done to avoid paying towards the financial crisis that was conceived in the financial sector itself.

All the best
Rory

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