Corporation tax

[tobyaw]

There have been news stories over the past weeks about large, usually multinational, companies, and the paltry amounts of corporation tax that they pay in the UK. It strikes me that there are two things at play here.

Firstly, corporation tax is an incentive not to make profits. Corporation tax is payable on trading profits and capital gains, after investments and allowable expenses. So if an organisation wishes to invest in growing its business, it makes sense to incur the costs of doing so rather than to make a taxable profit.

Secondly, with our European single market, it is normal for international companies to have their business based in a country with favourable tax rates, and to declare all of their profits there. Unless tax across Europe is harmonised, there will always be an incentive to base a company in a low-tax country. Indeed, countries compete to be the European base for international companies, and the need to offer more competitive tax rates explains why the corporation tax rates in the UK have been falling in recent years.

Multinationals might be trading — and might be profitable — in the UK, but much of their value can be created overseas, whether through manufacturing or through intellectual property, and it seems right that their costs follow their value.

Mind you, I’m not too worried about whether or not companies pay their corporation tax in the UK — while the revenues are significant, it is nowhere near that raised by income tax, National Insurance, and VAT.

Tax on profit is abstract in a loss-making world. I’m much happier with keeping companies honest with a tax on employement (PAYE) and on trade (VAT).

Comments

[andrewducker]

Also, comparing revenue to tax doesn't tell you anything, unless you know about things like profit margins.

[tobyaw]

I expect politicians to make cheap political points - it is in their nature - but I would expect business journalists to express a better understanding of how businesses actually work. Television reporting of business issues seems very shallow.

[andrewducker]

I don't watch TV news. I find I get more detail, and (usually) more accuracy, in less time, from words.

Turnover

[houstonjames.livejournal.com]

On balance I think I prefer a tax on turnover rather than "profit" (which is, as non-profit companies like Google UK demonstrate, is far too nebulous a concept).

The argument "what about loss-making companies" I've seen raised strikes me as spurious: a company running at a loss still has to pay business rates, PAYE, National Insurance and collect VAT on sales, which amount to far greater sums, why should corporation tax be different? The combination of PAYE and VAT comes close, but that could be seen as unfairly skewing things to non-VAT services (financial, transport)...

Re: Turnover

[tobyaw]

Turnover could be quite hard to define for many organisations. And in practice, if you are trying to tax the cost of doing business, then VAT does a very good job of taxing trade.

I'm not quite sure why we need to bother collecting corporation tax; the fact it exists as an inducement to invest rather than declare profits is enough for me.

[lewis-p-bear.livejournal.com]

When we looked like making a Huge profit one year, after four very lean years we bought a dam great office building and hired Brighton for the week end.
One made sense, no more rent, fixed assets, etc.
The other made no sense at all but WTH, it was fun AND we didn't give our hard earned money to a government who would only waste it on bombing people to make them like us.

[tobyaw]

Legal tax avoidance funding a big party? No better way of doing business.

[a-cubed.livejournal.com]

Isn't that how presidential campaigns in the US are funded? Oh, sorry, wrong sort of _party_ :-).