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23 Feb 2011
THE CBI has said the corporate tax rate need to fall below the government's intended level of 24% and that the UK has to concentrate on being more competitive.
The business group also revealed concern about the proposals for handling the way foreign companies owned by UK businesses are taxed.
Further reading
Responding to the consultation on corporate tax reform the CBI's director general John Cridland said: "The main purpose of tax reform has to be improved competitiveness, making the UK a more attractive location for inward and outbound investors.
"Encouraging companies to base their operations in the UK will create jobs and growth. The government's commitment to move towards a lower corporate tax rate will help this, but at the same time it must address the effective tax burden on businesses which currently makes the overall system uncompetitive."
He added: "The government also needs to address international perceptions that HMRC is very aggressive in its treatment of Controlled Foreign Companies."
The CBI believes the proposed controlled foreign companies (CFC) regime is "cumbersome" because of the way anti avoidance measures have been included.
The current CFC regime has come under much criticism in recent months including the implied attack from protestors with UK Uncut who have demonstrated outside branches of Vodafone complaining about the deal the company agreed with HMRC.
Elsewhere the corporate tax proposals have come under criticism from the Institute for Fiscal Studies.
In a report at the beginning of February the IFS said: "If all these reforms are enacted, the UK will have a corporation tax rate lower than most European countries currently have, but a system with significant additional complexity and which provides an expensive and distortionary tax break to a handful of firms, largely for activity that would have occurred in the absence of the policy."
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Here is how offshore system needs to change
Companies that operate in the UK pay tax upon their UK profits, they pay VAT, they pay national insurance on their UK staff's salaries and those staff pay income tax. They will pay local business rates on their premises.
Where the company is headquartered if it is a multinational determines what happens to their earnings once taken out of each country they do business in. It is generally a good thing to have multinational headquarters as you will gain extra tax revenue, but also because they use lots of other expensive goods and services, and employ the well paid staff. If the headquarters of a firm is in the UK then they will likely use a UK law firm, a UK accountant, UK IT consultants etc etc
The issue many people have is with tax rules that basically allow you to massively reduce your tax liability in the UK (and elsewhere) by various methods, often involving loans. Loan interest payments aren't taxed (quite sensibly) but this can be abused by using an offshore headquarters. So the owning company is based in the British Virgin Islands "lends" lots money to its UK subsidiary which makes regular interest payments back to the owning company. Those interest payments happen to coincide with the profits the British subsidiary makes, which basically reduces its profits to 0 and therefore reduces its tax liability massively. The BVI company has very healthy profits but in a country that doesn't tax them. It gets much more complicated but that is basically the idea. Google "sold" various technology rights to their European subsidiaries and receive interest payments back, hence their low tax rate.
The real kicker is that these Headquarters that are making all the profits and pay zero tax are often held under nominee directorships, so you cannot find out the real private owners..
The bank address for the offshore Headquarters company can be anywhere. It does not have to also be in the off shore country.
The company nominee directors have direct access to this bank account to do what they want.
This is because the offshore havens do not require the accounts to be audited or even for accounted to be submitted in general.
Ironically the "EU Tax savings directive" passed in 2008 stopped the ability of private individuals to do this. They did this by forcing all countries banks to expose all persons accounts everywhere to the other governments. This was lead by the main progressive tax countries of course to stop personal tax liabilities moving off shore and to avoid paying tax in high tax countries.
Just what companies are stil allowed to do.
Its painfully ironic what is going on. Think about the scale of the damage this causes to all of society and the ripple effects it has and its staggering.
Talk to any London accountant you have known for 5 or more years and they will tell you this in detail. If you don't have a long standing relationship with them then they are unlikely to discuss this dirty laundry with you.
What to do to solve this ???
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Its an international problem.
The world governments were able to pressue every other country and its bansk to expose everyone private accounts under the EU Tax Savigs Directive. It took a few years but under thread od boycoyt they eventually agreed.
Theexact samer thing has to happento corporate accounts. But "loaning maoney from the off shore holding company to the onshore trading company is legal. The ability to have nominee director s also ust be removed globally. Nominee directors are not needed, and the true owners of the holdng company should be publicly known.
Posted by: ggg, 03 Mar 2011 | 00:50