[Closed] Corporation tax on turnover rather than profit

What if you don't make any profit? (Ok, I'll admit I haven't read his proposal)

Bloody awful, if I turn over 100K and only make a 1K profit, but pay 20% tax then I wont be in business for long - but I do agree something should be done

Sounds like a terrible idea. And not very Tory...

I think this is how corporation tax works in France?

I work for a business selling fuel. Last results we made £11 million profit, but turned over just shy of £900 million. But of that £900 million over £600 million is also tax from fuel duty. So for that reason, I'm out. Stricter accounting rules would make more sense.

Very dumb. Just get rid of corporation tax altogether.

A massive oversimplification of a very complex issue.

A lot of bllx on this topic, but would recommend the latest stuff on IFS website - some dry-ish economics but good analysis not least re the impact of corporation tax on labour

It's breathtaking that an ex CoE thinks that a sales tax is some kind of panacea.

It's called VAT

Very strange that coming from lawson...

I think this is how corporation tax works in France?

No, just like the UK.

I paid lots of corporation tax over the years and was happy to do so as it was on profit. It's all the taxes that you pay before profits that hurt and mean businesses fail.

As stated earlier a tax on turnover is not good, it'll simply be passed on to the customer.
I support the idea of getting rid of shareholders or, at least, limiting their powers as a means of attracting companies to the UK and giving them enough wiggle room to pay fair taxes too.

It's called VAT

[s]No it's not, VAT has no real effect on a (real, VAT registered) company's turnover or profit (bar administrative overhead). It's specifically a tax on the consumer. It goes straight through any business, VAT paid out by companies is claimed straight back in VAT returns.[/s]

[Edit: sorry, no, I misunderstood initially. I see what you mean, VAT is supposed to do what Lawson is talking about. Ignore me. 🙂 ]

Getting rid of shareholders???? 😯

Not quite though is it - we pay out far more VAT than we reclaim!
And because they changed the rules a while back the huge excess can't be offset against other taxes anymore (well not how it used to be) so we are paying almost twice the tax.

Getting rid of shareholders???? 😯

Shockingly bad idea.

Some companies have to turn over a huge amount of money to make profit as they work in large volumes of low margin goods. They would go out of business. Meanwhile some companies turn over very little but are very high margin so would be laughing. Also I'm pretty sure within 12 months that most of the companies currently avoiding tax would have new legal set ups that would mean they would avoid this as well.

Agreeing a more sensible approach to transfer pricing would help. Even if just within Europe - the EU doesn't seem too bothered that the acquis is being manipulated for tax avoidance.

In a world of excess debt and leverage, the last thing we need is to disadvantage the providers of equity.

That would be truly absurd.

Yep, How many shareholders have the long term health of an organization over the short term profits?

OP idea is a non starter as we would likely be the only country to introduce it and business would just incorporate abroad, also almost certainly i possible as a member of the EU. Just imagine how expensive food woukd get, thats a very low margin business.

Surely they just need to make sure VAT works in the way it should. The fact that anything bought off Amazon UK doesn't pay into UK HMRC is ridiculous. Just because of EU trading laws. These laws are very convenient to the customer, but only really work if either all tax percentages are equal, or if all EU tax gets paid into a single EU customs and then distributed appropriately.

Dreadful. I work in construction - turnover can be high but profits are generally 2-4%.

No, it's a stupid Idea, and it's entirely unsurprising coming from an Ex Tory CoE and the thinking of what the Tories are trying to achieve is clear. The reasons we should reject the idea and press the HMRC on corporation tax are many.

1. Corporation tax is a direct tax on capital and the Wealthy. the very people that should have the greatest burden of tax.
2. That many companies go to such extraordinary measures to avoid paying it, indicates its precision in achieving point 1.
3. Moving away from corporation to a sales tax disproportionately effects the poorest in society (Lawson's aim, of course)
4. Define "Turnover" and "sales". At the moment you look at one number, and it's difficult and expensive to hide what you're doing, turnover on the other hand...sales, interest, rents, capital gains, speculative market trading, derivatives, insurance premiums...none of these are turnover, all can be profit making.
5. If a person if sufficiently wealthy to live of capital alone and avoid taking payment in the form of dividends from profit (i.e not take money from his company), then there would be even more incentive to accumulate wealth in low or no tax locations, making the wealth divide even greater.

It's not a massive surprise that this has come from the Tories, that they'd be so stupid about suggesting it, is probably why it's Lawson for the time being and not Osborne (who would be laughed at even harder after his ridiculous claims about Goggle's insulting low payment.) Lets' be clear, when the Tories talk about this, what they are saying is "we don't want us or our wealthy friends to pay tax on what we think of as "Our Money" and we will go to any amount of hassle to make sure we don't have to" Keep that in mind every time you hear the banging on about about changing tax regimes, 'cause that's what they mean.

And a tax on turnover unfairly targets companies with long supply chains, as unlike VAT there would be no way of offsetting it (reclaiming) meaning you'd have to pass the cost on directly each time.

Utterly stupid idea - a great way to see anything but the service industry fold overnight

I can only assume he's been misquoted - and if he hasn't then he certainly ticks the [b]politicians haven't a clue[/b] box, which most/many seem to now (as so few of them have actually worked in business).

The problem with Tax and International Corporations is that they can move the 'profit' around so it ends up being taxed in the lowest possible place. Hence the reason for Ireland's and Luxembourg's low rates.

What I think we should be aiming for is a tax on where the profit was made. As an example Starbucks makes huge profit in the UK (if it didn't why are more of them opening all the time). But because Starbucks in the UK buy's it's coffee at inflated prices from Starbucks in Switzerland, technically it makes a loss and as such pays no corporation tax.

Somehow these mechanisms need to be removed - and that is going to be very difficult, if not impossible. A good first step would be to seriously overall our hugely complicated tax code, to make it easier to see for HMRC to collect tax and more difficult to find the loopholes. At a personal level give up the Income Tax and NI split and combine into a single tax.

So, basically it's never going to happen.

No, it's a stupid Idea,

And it started so well...But

and it's entirely unsurprising coming from an Ex Tory CoE

No it's still very surprising.

Corporation tax is a direct tax on capital and the Wealty

You are sure??...and then well...

At the moment you look at one number, and it's difficult and expensive to hide what you're doing,

If that was the case, we wouldn't be having these debates

If a person if sufficiently wealthy to live of capital alone and avoid taking payment in the form of dividends from profit

Now I am really lost

What I think we should be aiming for is a tax on where the profit was made. As an example Starbucks makes huge profit in the UK (if it didn't why are more of them opening all the time). But because Starbucks in the UK buy's it's coffee at inflated prices from Starbucks in Switzerland, technically it makes a loss and as such pays no corporation tax.

That is what happens at the moment. But it's hard and complicated.

Starbucks is more to do with transfer of intellectual property for US to Neth and then royalty payment to use this from UK to Neth.

1. Corporation tax is a direct tax on capital and the Wealthy.

right, so the accumulation of capital and wealth is not the profit motive?

Better tell the capitalists, I'm not sure they know...

Sorry, what is that meant to mean and what is the link to corporation tax?

Possibly that the less corporate tax a company pays, the more can be given to individuals and shareholders. Yes, we're back on that one.
But the opposite argument is that if it ain't broke (which is most definitely is), don't fix it (which is head in the sand stuff). 😀

Well the first bit is a truism, if incomplete

The second bit isn't. The system IS broken - the question is how to mend it. Lord Lawson's suggestion is at best an incomplete answer (the polite version)

Someone on R4 today was making the point it's massively disincentivising to small business who don't have the international reach or the financial team to work out the loophole, working so hard to run a business and make a profit in a challenging environment, and seeing large corporates take the mick to such an extent.

Part of the point of free market capitalism in a democracy is that consumers can take their money elsewhere if they're unhappy - as they did with Ratners...

However, who here has stopped using Google, Amazon, Starbucks etc? We could provide an incentive ourselves which could be very powerful, but despite all the complaining going on we're doing very little about it... in the case of Amazon and Google I'm afraid I include myself...

Well tax is disincentivising full stop. But governments need to raise revenue, so the question is how best to do it without disincentivising people too much.

Having an absurdly complex tax code is not the answer. So as the old joke goes, when talking about how to get somewhere. "You wouldn't start from here!"

The main problem seems to be multi nationals who have the power to find locations and sytems that allow them to reduce corporation tax.
The UK has no benefit as the tax is paid outside the UK. Let's put a 25% tax on all transfers until someone finds a way around that... Oops! Too late. The shareholders are pushing and driving for higher profits and dividends. When there is no possibility of growing sales through traditional models of growth (new product- existing market etc) the imagination has to find new ways of increasing profits. It's a bit like the great strategy of offering lower prices than comopetitors, it won't last forever.

We don't need these huge multinationals or these structures. Starbucks had a parent company that charged starbucks for services rendered, thus removing all Starbuck's profits from UK to holding company's off-shore account.
We could limit the power or incomes of shareholders thus limiting their greed.
We could split the multinationals into country specific entities that pay tax in the host country ( you want to trade here, you pay our tax).
Let's not forget that The Cayman Island's tax status was authorised by British Govt and now we're paying the price. Bravo.

EDIT:

Someone on R4 today was making the point it's massively disincentivising to small business who don't have the international reach or the financial team to work out the loophole, working so hard to run a business and make a profit in a challenging environment, and seeing large corporates take the mick to such an extent.

If the UK has no benefit, how do these companies survive?

What dividends do amazon and google pay?

Why do multinational exist, if no one needs them?

The shareholders are pushing and driving for higher profits and dividends. When there is no possibility of growing sales through traditional models of growth (new product- existing market etc) the imagination has to find new ways of increasing profits

This is a really important insight. What's going on here is similar to all the share buybacks that are going on (using borrowed money).

It's a very bad sign, one of corporate failure rather than success. Incentives for senior management to keep the share price high, are massive. Disincentives for letting share prices drop are also massive.

Demand worldwide is currently lagging - the result of the 2008 debt hangover - the West is skint, hence China now slowing up, and the Chinese and other emerging markets are now also showing their limitations, hence all the doom and gloom about global growth this coming year.

I don't think anyone cheats because they want to, they generally do it because they can't achieve what they want through legitimate means. So these accounting games (and the share buybacks) are happening because demand is slack and therefore companies are neither growing nor making much profit. However their managers' personal wealth and survival depends on [i]looking like[/i] they're making a profit, hence the tricks and sleights of hand.

Sooner or later these strategies will lose their effectiveness. Also worth remembering we're balls deep in debt at government level. With wages stagnant, George's tax numbers are looking very shaky. Whatever his external signs of confidence you can bet he'll be looking at closing these loopholes soon enough to avoid UK being bust just as he goes for the premiership...

If the UK has no benefit, how do these companies survive? [b]I guess the UK is receiving some other benefit which isn't from corporate tax. I think you are better informed in this than me. [/b]

What dividends do amazon and google pay? [b]Is it too much to guess that if they're listed, that they are probably paying to the institutional investors, it is, afterall, one of the ways that institutional investors make their money. [/b]

Why do multinational exist, if no one needs them? [b]Because we've let them? There was a time when multinationals had a place, then greed took over and here we are. [/b]

As an insider, how would you resolve this problem?

It's worth remember that these companies provide services billions of people use everyday so the lot at the top are going to be minted. Problem is with taxing companies that are highly mobile and with such global reach, the world has seen nothing like it before.

Note that Amazon Web services are used by the Guardian for the iPhone and data analytics, so they moan on one hand and give them business on the other!

Corporation tax on turnover?

What an utterly ridiculous idea,

Consideration would only be undertaken by true idiots

What dividends do amazon and google pay? Is it too much to guess that if they're listed, that they are probably paying to the institutional investors, it is, afterall, one of the ways that institutional investors make their money.

Which is why it always make sense to do a bit of research, both are reknowned for not paying dividends, this is why THM asked the question.

Which is why it always make sense to do a bit of research, both are reknowned for not paying dividends, this is why THM asked the question.

Not a trap, merely wondering why you were arguing about shareholders pushing for greater dividends? You are making this an issue.

The first question was also a simple one - provide goods and services for which there appears to be strong demand, employment (ditto - unless they are using chain gangs)?

Very simple research indicates the impact that corporation tax has on labour - as always people,should be careful what they ask for.

At least we only have one left-of-centre party's arguing in favour of competing strongly on corp tax levels, but they could have been simply dreaming.

Not a trap, merely wondering why you were arguing about shareholders pushing for greater dividends? You are making this an issue.

The first question was also a simple one - provide goods and services for which there appears to be strong demand, employment (ditto - unless they are using chain gangs)?

Very simple research indicates the impact that corporation tax has on labour - as always people,should be careful what they ask for.

One point that hasn't been addressed. All those in favour of penalising shareholders, you don't have pensions do you? Do you?

A couple of exceptions? They are at the centre of this whole debate....

Odd that people patronise Amazon and Starbucks instead when they could be served at the local level instead. Why would that be?

Interestingly Google is a company that [i]does[/i] restrict its shareholders, by issuing shares with much lower voting powers than those retained by the founders. According to them, and to [url= http://www.theguardian.com/business/2015/feb/11/british-capitalism-broken-how-to-fix-it ]Will Hutton[/url], who is one of the main voices calling for regulations on shareholding/ownership, this allows them to remain more innovative, take a longer term approach, and take more risks on investment.

However, it clearly doesn't solve the corporation tax issue, which is quite separate.

[quote=brooess ]I don't think anyone cheats because they want to, they generally do it because they can't achieve what they want through legitimate means. So these accounting games (and the share buybacks) are happening because demand is slack and therefore companies are neither growing nor making much profit.

I presume you must be referring to some companies other than Google and Amazon the rest of us are discussing?

Odd that people patronise Amazon and Starbucks instead when they could be served at the local level instead. Why would that be?

Perhaps because they don't pay corporation tax so their prices can be set lower and still make a profit for their shareholders?

... And pay their staff

oldnpastit - Member

Perhaps because they don't pay corporation tax so their prices can be set lower

Starbucks prices aren't lower, though. They're a fairly expensive place to buy a fairly ordinary coffee.

(except the caramel macchiato, I assume they're doing it wrong because everyone else's is different, but I love it. MMMM tax avoidey)

Starbucks prices aren't lower, though. They're a fairly expensive place to buy a fairly ordinary coffee

konabunny - Member
Starbucks prices aren't lower, though. They're a fairly expensive place to buy a fairly ordinary coffee

So if it's not the coffee that gets people through the door of Starbucks, what is it?

The tickling of the genitals by the elves under the counter.

Have you not seen how mrsfry shivers at the first mouthful?

A couple of exceptions? They are at the centre of this whole debate....
[b]But it isn't just restricted to two campanies, is it? If you look at the tax havens, the number of registered companies is counted in the tens of thousands, Google and Amazon is just the tip of the iceberg, I don't know why the focus is on these two organizations. The level of tax revenue that this country is losing must be enormous.[/b]

Odd that people patronise Amazon and Starbucks instead when they could be served at the local level instead. Why would that be?
[b]Starbucks have an intersting history, they participated in something that was labelled brand bombing (highlighting the importance of brand) where they would open so many branches that they would squeeze out the competition, when the competition folded, they closed the unprofitable branches leaving one or two to take up all the custom. This is not a cheap strategy to undertake, but ultimately a profitable one. And I think we can see that they were an already high profile when they arrived in UK, they were entering a new market as in we weren't a coffee house culture ( we had pubs). People didn't have as much choice as you claim (people are stupid and marketers know this) The higher prices that we now see are possiblty a consequence of having a cornered market, good marketing team and gullible customers. I don't buy coffee in Starbucks and have only been there twice in my life due to their brand bombing. There is competition in the form of Cafe Nero and Costa and independants for this new expensive coffee experience, but following the Starbucks model.
As far as Amazon is concerned, their customers are there for price and in order to reduce price they have to have reduced costs and not paying tax is part of this equation. And yes, that means that we, the customers, are guilty of promoting and allowing the business to flourish. It also means that we're as guilty as the corporations for the whole problem.[/b]

So if it's not the coffee that gets people through the door of Starbucks, what is it?

b) If you liked it before, you will like it again. i.e. No risk of being disappointed.

c) Service will be consistent. i.e. No risk of it taking too long.

d) Unlikely to offend. This is probably less true these days, but for a long while Starbucks was the inoffensive middle ground. i.e. No risk of looking like a fool for arranging to meet there.

The motivations are similar for Amazon.
i.e. It's the less risky option

If people stopped using them then they'd be in trouble, and they'd have to change their ways. I do admit that it is pretty easy to do that in the case of Starbucks and their god awful coffee, not necessarily so easy with Amazon and Google who provide a quality specialist services.

NB: I don't think people fully understand what Amazon do, it is far more than just delivering books etc. their cloud based computing side Amazon Web Services (AWS) is now a big chunk of the company, from Oct 2015:

[i]AWS made up only 8% of Amazon’s revenue last quarter, but it made up 52% of its operating profit. The cloud business’ profit was bigger than the rest of the company combined. [/i]

And yes, that means that we, the customers, are guilty of promoting and allowing the business to flourish. It also means that we're as guilty as the corporations for the whole problem.

Indeed. should be remembered among all the huffing and puffing 😉

The ranges on tax loss vary but approx. 10% of current corp tax take

For all the hammering of big companies - something like 1% of companies pay 80%+ of corporation tax. Not a justification for aggressive avoidance* per se, just a point

* that has a cost too which is another inefficiency in the market

As I wrote in a letter to my MP on Friday, the UK arm of Google recorded profits in it's first quarter of 2014 in the region of $10bn and represented 10% of Google's worldwide revenue.

If we're supposed to be so skint, then why aren't we taxing appropriately? What about Amazon, Starbucks and Apple to name but three?

Surely, if multinationals want to do business here and reap the profits from here then they should pay a reasonable amount of tax?

No one is disputing that fact.

But there is a wider problem of up-dating a tax framework that addresses the realities of modern commercial life. The current one fails miserably. Until this is sorted out, companies can legally carry on doing what they are doing.

For the sake of balance, that includes in Amazon's case increasing their workforce by 50%, investing heavily in automation and providing two hour deliveries.

Doing this costs money too - their gross margins continue to fall, revenues and profits miss their stated targets etc....

As for shareholders, share price was mullered on Friday and you are still paying 900x earnings for the privilege of being a shareholder (source FT today) although they have performed strongly over the past year - so you decide, who the winners and losers are...

The whole business of taxing profit where it is made rather than where it ultimately ends up seems pretty complicated. And don't forget that, compared to countries like the USA and UAE, the UK can be seen as a low tax jurisdiction. (so we could be accused of facilitating tax avoidance!)

I think there are a few fairly simple tweaks that would generate more tax from the larger corporates.

Stopping carry forward losses, or transferring losses within a group spring to mind.

But that would only happen if there was the political will, and the government could afford clever enough lawyers,

@PJM Apple is a very good example of a company absuing its position. It pays very little tax anywhere including the US. Its the target of a lot of critism there too. I am pretty certain Google UK did not make $10bn in profits in 2014

The UK cannot fix this problem whislt we remain in the EU, tax rates are low in Ireland and Luxembourg but even still the governments there arranged sweetheart deals (Triple-Irish and 100's of deals personally sighed off under Junker)

@tmh, intellectual property and licensing fees should not be deductable against profits if the fee is not taxable at another UK entity. I'd create a 10-15% additional on-line sales tax too and find a way to efficiently tax on-line advertising revenues (facebook, google etc)

[quote="sadmadalan"]At a personal level give up the Income Tax and NI split and combine into a single tax.
...and guarantee that no pensioners will vote for you in the next election. There's no NI levied on pension income. So either:

1) Combine income tax & NI and make the basic rate 32%. No chance. That's an direct raid on pensioners' income and they'll be a bit annoyed.
2) Scrap NI completely, keep the basic rate at 20% and magically find the other 12% from down the back of the sofa. Not happening.
3) Accept it's a flawed system and let sleeping dogs lie.

You do realise that could easily be mitigated by taxing pensions at a different rate?

Accepting the status quo is just a cop out.

Butchering the tax system to try and stop abuse is counterproductive, makes us less efficient, and penalises the innocent. Disallowing losses brought forward would deter investment, introducing taxes on royalties would increase the cost of accessing new technology, etc etc.. You end up throwing out your baby triplets with the bath water.

As I constantly have to repeat on here leaving the European union old have limited effect as we would still be bound by our extensive network of double tax conventions which, inter alia, limited our ability to discriminate between amounts paid to foreign companies compared to UK companies.

The solutions the government are following will have an impact but I can still see ways round it and it will take time to implement.

[quote=mefty ]As I constantly have to repeat on here leaving the European union old have limited effect as we would still be bound by our extensive network of double tax conventions which, inter alia, limited our ability to discriminate between amounts paid to foreign companies compared to UK companies.

So we would be free to renegotiate the way those work with countries which have such wildly different rates of tax that it is advantageous for companies to take advantage of them. I don't think anybody could claim such renegotiation was in any way unreasonable or discriminatory - if another country wants to have fully open double tax conventions then it simply needs to apply similar rates of corporation tax (and not allow money to flow tax free through there to another tax free country aka Dutch Sandwich) so that the flow of money is not all one way.

I appreciate it's not that simple, but at least it would be possible to enter negotiations on things like this if we were outside the EU - whilst in the EU it's completely pointless and impossible.

I don't think anybody could claim such renegotiation was in any way unreasonable or discriminatory

It doesn't matter whether it is reasonable or not - if the other country doesn't want to play ball you will not get a new treaty - Ireland is not going to increase their tax rate to keep the UK happy. That leaves you with the nuclear option of rescinding the treaty, which has only happened once between developed countries in my memory (Denmark/France), but as a trading nation that is contrary to the whole way our economy works.

To be fair, treaties can more rigorous about what is required for them to apply than EU stuff, but as I am out of date I am not sure to what extent the UK has been able to adopt the US approach in recent treaties.

Having said that, this is all a bit of a red herring, if Google were paying royalties to the US, people could see that is fair because it is where the intellectual property resides. In which case, it is really the US that is missing out rather than the UK, because royalties are reasonable they are just not going to the US and therefore avoiding tax there.