Tax news is dominated by two conflicting sides at the moment. One the one hand HM Revenue & Customs are warning tax payers that fraudulently avoid paying tax will be harshly dealt with, yet meanwhile multi-million pound corporations are “legally” evading corporation tax and HMRC are powerless to do anything about it.
In the last year, major US corporations including Amazon, Starbucks and Google have all been reported using a legal tax loophole to avoid paying billions of sterling in UK taxes. The “legal” tax avoidance schemes allow multinational corporations to transfer royalty payments to sister companies in other European countries.
The tax avoidance schemes employed by large multinational companies clearly manipulates the UK tax system and although they have been heavily criticised by numerous MP´s in Whitehall, Prime Minister David Cameron is not willing to act or even name and shame multi-million pound tax evaders. A spokesman on behalf of the Tory leader said: “An important part of our tax system is taxpayer confidentiality. We would not want to do anything to undermine that.”
Formula One Evades Corporation Tax
The latest multi-million pound earners found to be using offshore companies to avoid UK corporation tax is Formula One (F1). Despite racking up £305m in profits last year, the corporation only made a net contribution of £945,663 – even though the majority of its commercial operations are based in the UK.
F1 is able to substantially reduce its tax liability because they get tax breaks by ploughing most of their profits back into improving the cars. Yet the money they make from race-hosting fees, television broadcasting fees, advertising and sponsorship still makes them a handsome profit. However, to lower their tax liabilities they take out loans from other companies that are not tax deductible.
All the major corporations that have been found to be evading corporation tax liabilities in the UK all claim one thing: They owe a responsibility to their shareholders to make a profit. Maybe David Cameron is one of these shareholders which is why he is keeping tight-lipped.
Lost Billions in UK Corporation Tax
The tax avoidance schemes ultimately meant that the UK public paid more in tax than corporations for the 2011/2012 tax year. HMRC calculate £4.1bn in corporation tax liabilities was lost because multinational corporations siphon off profits to offshore companies. To put that figure into perspective £4.1bn would pay for 25 new hospitals or give 153,000 nurses a pay rise. Meanwhile legal aid benefits have been stopped due to the rise in claims against the NHS for the medical negligence of overworked NHS staff.
Analysts also predict that the shortfall will be used to burden the UK public when the Chancellor announces further spending cuts and tax rises in his autumn statement. Rather than close the gap on offshore tax avoidance schemes, the Treasury has invited large corporations to house their headquarters in the UK by offering tax rates of 22 per cent on profits rather than 24 per cent.
What do you think about the tax avoidance schemes used by major corporations? Do you think the UK government should change the laws to prevent tax evasion rather than inviting multinational corporations further tax benefits the UK public ultimately have to pay for?