We May Crack Down on Likes of Starbucks but UK Is Still Open for Business

The Birmingham Post (England), December 13, 2012 | Go to article overview

We May Crack Down on Likes of Starbucks but UK Is Still Open for Business


Byline: ANNBIBBY

The UK has set out its stall as a favourable destination for multinational companies. So is the recent public accounts select committee hearing on the avoidance of paying tax on profits in the UK likely to scare away big multinationals, or do other benefits compensate? As multinational companies continue to globalise their operations, shopping around for opportunities to minimise their tax bill will inevitably continue.

While this, arguably, was not a major concern for governments during the economic good times, in today's fiscally challenging conditions, companies with a presence in the UK deemed not to be paying their fair share of tax here are under the spotlight. We have seen this recently with HM Revenue & Custom's pursuit of individuals not declaring deposits held in Swiss bank accounts.

At the heart of current public anger against the likes of Starbucks, Google, Amazon and others is the fact that while these companies operate in the UK, they have operations elsewhere which may give tax advantages - most notably those in low tax jurisdictions such as Ireland and Luxembourg - thereby legally reducing tax on profits paid in the UK.

The particular blame for the recent outcry has been placed at the door of transfer pricing, which is when subsidiaries in different countries charge each other for goods, services and royalties. The suggestion is that the charges were set in a way that shifts profits and keeps down global tax liabilities.

The difficulty here is that, unlike many other allowable business costs, it is not easy to quantify whether, for example, the amount charged as a royalty for the use of a valuable brand is a fair percentage of revenues.

However, most countries have longstanding rules and regulations that stop companies abusing intra-group pricing if, for no other reason, but to protect their own tax take. In fact it may be a surprise to some that the UK's transfer pricing rules date back to 1951.

And the fact remains that while the UK may not exactly be the tax-free location currently being portrayed in the media, the Government has made many improvements for multinational companies with the stated aim of attracting them here in order to boost the economy and provide much needed employment.

The main incentives are - no UK tax liability on most dividends companies receive on shares held, whether UK or foreign resident; exemption from tax on most sales of shares in trading companies; by international standards, a generous regime for tax relief for interest expense; full tax amortisation of the capital cost of externally acquired intangibles; a superdeduction for the costs of research and development; no withholding tax on any dividend payment; elimination of withholding tax on interest and royalties under many of the UK double tax treaties and EU directives; tax on employment costs lower than those in many comparable jurisdictions; generous loss reliefs; and a main rate of tax of 24 per cent, which will reduce to 22 per cent by 2014, low in comparison to comparable rates elsewhere. …

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