The Rich Looking After The Rich

[Xpert]

http://news.sky.com/skynews/Home/Business/Vodafone-Shop-Protest-Over-Tax-Bill-Oxford-Street-Store-Closed-By-Protesters/Article/201010415777604?lpos=Business_Carousel_Region_3&lid=ARTICLE_15777604_Vodafone_Shop_Protest_Over_Tax_Bill%3A_Oxford_Street_Store_Closed_By_Protesters

[manshimajin]

They were also talking on the BBC today about how Barclays Bank were using shelf companies to avoid tax in UK and the USA.

[Chinahand]

Tax planning isn't illegal. Companies should quite definitely structure themselves for tax efficiency. The tax code is labyrinthine and the result is that there are circumstances where companies can perfectly legally reduce their tax payments. If there is a fault in that it lies within the tax authorites for having such a complicated system.

 

The costs of creating the structure only work when the sums involved are huge - but so what. If its allowed the idea you should pay more tax than necessary is bunkum in my view.

 

The treasury can, and does, close loopholes - even retrospectively.

 

But there is a cost to the taxman being overzealous. One in four hedge fund employees have left the City of London in the last year - that's cost the exchequer £500 million. People have a right to mobility and if you squeeze them, they'll leave before the pips squeak.

[manshimajin]

Tax planning isn't illegal. Companies should quite definitely structure themselves for tax efficiency. The tax code is labyrinthine and the result is that there are circumstances where companies can perfectly legally reduce their tax payments. If there is a fault in that it lies within the tax authorites for having such a complicated system.

 

The costs of creating the structure only work when the sums involved are huge - but so what. If its allowed the idea you should pay more tax than necessary is bunkum in my view.

 

The treasury can, and does, close loopholes - even retrospectively.

 

But there is a cost to the taxman being overzealous. One in four hedge fund employees have left the City of London in the last year - that's cost the exchequer £500 million. People have a right to mobility and if you squeeze them, they'll leave before the pips squeak.

The BBC discussion was about how two profitable Barclays' businesses, one in USA and one in the UK, could structure their operations through shelf companies to end up paying zero tax on profits which seems an extreme example of 'reducing tax payments' and not 'paying more tax than necessary'. I would agree that it is sensible for individuals and companies to manage their tax affairs effectively. I also agree that the tax authorities should make the tax systems less complicated. But at what point does it become evasion rather than avoidance for companies that are generating profits but paying no tax on them?

 

Given the difficult trading circumstance that hedge funds have experienced are the job losses due to the tax system or to the poor business results and relatively depressed investment environment in the UK? PWC reported that the UK hedge fund industry almost halved in size 2008-2009 and in the USA the number of new hedge fund jobs fell by nearly 70% between the start of 2009 and the end of August 2009. So it would not be surprising if employee numbers are down. Could it be that it was the lack of work that made the pipsqueaks squeak rather than tax systems? I don't know how much the sector has clawed back since then but it has been growing slowly.

 

P.S. Whilst I am not saying that the finance sector is your source Chinahand, the recent comments from that sector about the potential for'damaging' job mobility if they are regulated, bonus taxed higher, corporation taxed more etc..etc.. has about the same validity IMO as comments on the state of the housing market emenating from estate agents. There has always been job mobility in the sector and IF the senior management is doing its job professionally they will have properly developed succession plans and successors for such situations.

[pongo]

Tax planning isn't illegal.

 

No. But most people in most countries agree that tax dodging is basically nefarious. Especially at a time when govts and national economies are already so short of the funds needed to pay for basic services.

 

The banks and the finance industry in general should be the last people trying to avoid paying tax now - given that it was rescuing the finance sector which caused all the governmental debt.

 

There is a big difference between being tax efficient vs deliberately diverting funds abroad to avoid paying tax.

[Chinahand]

Manshimajin, its not that these Hedgefund employees have lost their jobs, though many have - its that they've moved to Switzerland.

Source.

[DevilledEgg]

They were also talking on the BBC today about how Barclays Bank were using shelf companies to avoid tax in UK and the USA.

 

I presume you mean 'shell' companies.

 

Shelf company is an entirely different concept.

[manshimajin]

Manshimajin, its not that these Hedgefund employees have lost their jobs, though many have - its that they've moved to Switzerland.

Source.

Looks like a double whammy then - both a huge drop in employment in the industry and some managers possibly going to Switzerland (I note that the managers have not commented themselves). Given that the UK has made itself very dependent on financial services this may be a problem for them. I suspect that this type of individual would be much more loyal to their wallet than to their nationality so they would always hold a metaphorical gun to the head of any Government and one has to ask whether in the end it is worth giving in to them or doing without them. There is a financial downside but a freedom of movement upside. I leave that one to HMRC to work out!

 

But I think that the real issue that was raised here is not about tax rates but is whether companies should be allowed to evade tax that they should rightly (or morally?) be paying. If people move their business from one location to another because they can evade tax how should we view that?

 

Devilled Egg - looking at your Avatar I have to stand corrected!

[Gladys]

Again we come down to morals; an entirely subjective concept and one with more shades of grey than can ever be helpful. One company's morals may be to suffer only 10% tax and to, legitimately, plan against paying more, but another company's morals may be to suffer the entire tax burden without any planning whatsoever and reduce the funds available for re-investment, research or even straightforward dividend to shareholders. Which is right (given no evasion)? Tax loopholes seem to be created in attempts to stymy exploitation of earlier loopholes or even concessions intended to stimulate a particular kind of economic activity as being seen for the greater economic good, so we end up with an extremely complex tax regime which has created a whole industry in trying to avoid it.

 

Wouldn't it be better to go back to basics and, say, everyone earning over a certain amount pays 10% and that is it? Simples, no one needs a tax adviser/lawyer/accountant, there would be no tax efficient jurisdictions and each would be supporting itself from its true intrinsic economic value.

 

Only a thought, like.

[pongo]

Also relevant in the context of this interesting conversation is Google's Double Irish - Dutch Sandwich which has been in the news over the past week. Eg - links.

 

Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes - Bloomberg

 

The Tax Haven That's Saving Google Billions

[manshimajin]

Only a thought, like.

I think that it is a very logical thought.

 

We are in a situation where metaphorically the dog is chasing its tail. Every time a loophole is closed off someone finds another one which is then closed off ad infinitum.

 

When you step back from that situation isn't the reality that the tax authorities want companies to pay taxes and the companies want to find ways of avoiding this to the maximum extent possible (which, dependent on the company and the individuals owning them can range from prudent tax management to outright avoidance).

 

To achieve what you suggest Gladys would it be necessary not only to have a simpler tax system but also some form of legislation that says (and I won't get this right!) that shell companies and complex tax minimisation structures are illegal and that the Board and the Financial Controller face personal penalties including imprisonment if they breach this requirement. Carrot of 10%, stick of fines/jail.

 

Of course we might not like your proposals on the Island as they could remove benefits of being domiciled here.

 

P.S. I think that there are examples where lower taxes raise more revenue because it ceases to be cost effective to have the 'minimisation/avoidance' structures and administration.

[La_Dolce_Vita]

If you introduce such legislation, would these companies not simply find news ways and make use of new locations with which to reduce their tax?

[jimbms]

If you introduce such legislation, would these companies not simply find news ways and make use of new locations with which to reduce their tax?

For once I think you are correct, maybe it is better to ignore some ot these methods if they manage to keep a good income coming in rather than close the door, put people on the dole and lose what income you have.

[manshimajin]

If you introduce such legislation, would these companies not simply find news ways and make use of new locations with which to reduce their tax?

That may be right for small companies but would large ones move? Overall a simpler tax structure is probably not much more costly than having shell companies here there and everywhere, a large body of accountants and lawyers, company secretaries, tax consultants, costs of fighting tax cases, diversion of senior management time from productive activity, adverse effects on public/market image etc etc...the ones who would move would probably be the owners who want to avoid paying any tax so would that be a loss. Certainly jobs might go with them but then again other companies might actually like to set up in a legislature that has a low cost and uncomplicated tax system.

 

I suspect that the answer is not as black and white as either of us assume through our posts.

[Alias]

The money grabbing by some of the governments is immoral, take the US for example which attempts to foreign profits. What have they got to do with the US? Or the recent Vodafone case, the UK taxman after capital gains tax on the sale of an Indian subsidiary.

 

(these are just my understanding, I don't really care about either case)