Chesterfield (London) 
207 Old Marylebone Road
Tel: +44 (0) 203 771 3853
Fax: +44 (0) 203 771 3856

Corporate Services News

Look at large companies tax minimization


Over the past few months there have been various big names that have come under scrutiny by the press for not paying sufficient taxes in the UK.  Among them are Starbucks, Google and Amazon.  It is important to firstly establish that what they are doing is not Tax Evasion, which is illegal, but rather Tax Avoidance using the rules  in the current legal system, or as some people prefer to refer to it Tax Minimization which all businesses correctly try to optimize when  it comes time to claim on reductions or credits. 

The way in which this is usually done is by first identifying the corporate level of tax in various jurisdictions.  Corporate tax is a tax levied on the profits of companies.  For instance the United States corporate income tax levels vary from 15%-35%, whilst in the UK this is 26%.  When we compare this to Ireland where the corporation tax is only 12.5% and Bermuda where there is no corporation tax it is easy to see why it is so tempting to choose a much cheaper jurisdiction.  Google is reported to have saved $3.1 billion in taxes by transferring the majority of its foreign profits into bank accounts in Ireland, the Netherlands and Bermuda. 

The reason the corporate tax levels are so low in these countries is to attract multinational investment.  So what are the governments going to do about this?  Obviously with the current deficits in the budget causing social problems, the recent publicity regarding tax avoidance has caused a large public opinion for the Governments to cut down on this practice.  This is not the first time tax avoidance has come up and the government in the UK has clamped down, they did this before in 2011 when for example loopholes were closed preventing online retailers basing their operations in the Channel Islands to take advantage of cheaper taxes. 

The government has been making noise in response to this recent media led public opinion outcry and has made the three companies appear before a Public Accounts Committee to defend why they have paid so little corporate tax in the UK over recent years. However it would appear the structure they are using is not against the law and is within EU rules therefore the Committee has no power to punish the corporations.  The corporations will continue to take advantage of these benefits.

 If the law is too demanding then the government run the risk of driving these firms out of the UK, this will have a detrimental effect on jobs, VAT and employment taxes, something that they would definitely want to avoid during a recession.  A suggestion would be to negotiate treaties with other governments to curb their incentives for companies to do business there, but this is an unlikely scenario. So at the moment the only thing to do is wait and see until the government release their findings.

  |   Email a friend

Licensed & Developed by UiBS>®