Mundell, an excellent post and exactly why I believe we must vote with our wallets, if we disagree strongly enough, let's spend our money elsewhere and force a change.
Most people won't though because often these companies are cheaper and/or more convenient and I certainly include myself in that.
“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be "cured" against one's will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.” - CS Lewis
Fascinating character was Lewis. Had the Irish gift of the gab and shared Tolkeins love of mythology. I liked the film about him, Shadowlands.
Private tutors, Public school, Malvern College, Oxford, Cambridge universities, lay preacher, Christian apologist, sometime atheist following WW1 enlistment as an officer, served in the Somme, a lifetime in academia.
Some emotive posts that amount to nothing more than barking at the moon.
I earn £100. I pay 20% in tax = £20 I pay 12% in National Insurance = £12 My employer pays 13.8% National Insurance on the same earnings = £13.80 £80 left in my pocket with £45.80 in tax so far.
I spend my £80 on some clothes from John Lewis Of the £80 only £66 goes to John Lewis, £13 is VAT that they pass on to HMRC, £58.80 tax so far.
John Lewis pay corporation tax of say 21% on their profit say £10 yielding £2 in tax, £60.80 tax so far.
The £8 of profits left is paid as a dividend to shareholders and tax is deducted at £20% = £1.60, that makes £62.40 in tax.
The £6.40 left is received by a pensioner who buys a newspaper of which 78p is VAT giving £63.18 and so the cycle of tax goes on and on, but sooner or later you are trying to tax that £100 more than once.
How about creating another £100, does that sound like a better idea? Who creates the new £100? Not the State, they just take possession of money. New money is created by the money the State is not using left over after tax is taken. The one certainty that happens when you tax more is to reduce the amount available to create new £100s.
If John Lewis had the choice of avoiding the £2 of corporate tax who does it affect? It will just increase the dividends so the pensioner gets £8.40 taxable instead of £6.40 taxable. The £2 hasn’t avoided being taxed, it’s just taxed somewhere else. Stop buying goods from any business and you reduce it's profits and the tax payable on the profits. As most of our pension funds and insurance companies invest in overseas companies, that might include very profitable companies like Amazon, it also reduces the dividends received that we ultimately spend in the UK. It doesn't increase the State's revenue, but if boycotting Amazon makes you feel better then fine.
Once a lemon has been squeezed of all its juice you don’t get more by squeezing harder. But the State does its best. Even if you are poor and receive financial support, the State will look to apply tax on the tax that has been paid out as welfare payments.
Excuse me if I don’t lather at the mouth at the idea that there is rabid tax avoidance going on.
The trap poster are falling into is because tax is politics, never has the title of a thread been so appropriate.
Take the mansion tax. A great idea to get more tax from the rich bastards. Problem is a house is not money and there is no money that's moving that can be identified and tax. So we invent a number that we call money to tax. But HMRC don’t accept pretend money so it has to be converted to real money. The real money is money that would have been spent by the mansion owner so you can take away the 20% VAT straight away as a loss of revenue then add all the other points of taxation the money would have yielded tax. Not quite the bonanza we might be led to expect, but hey, it gets politicians votes.
The crux of the argument is that of course you can break the cycle by moving the money you control to a different tax cycle in a different country. Because different countries raise tax at different points in the cycle, you can arbitrage by living in a country where there is less tax taken from money receipts and perhaps more on money when spent. You can spend it anywhere else in the World, even on Amazon, and pay tax anywhere else in the World. This is “unfair” because every State wants to have as much money circulating within its control as possible. There are a few solutions:-
1 People choose not to move the money to another tax environment - moral icons who increase the taxes paid somewhere else 2 Legislate to ban the movement of money to another tax environment - bad idea for business and savers 3. Legislate to ban citizens spending money in another tax environment - What about if I'm on holiday?
In the free world we have freedom of travel and freedom to invest anywhere. Arguing for a “fair” tax system is arguing for commercial isolation that allows 100% control of the money circulation within a State. This is how the ultimate fairness of communist States is achieved where it is illegal to leave the country or take money out.
First of all sort out how you raise tax efficiently, then decide how the State spends it. They are two absolutely different debates being mixed up.
I have nothing more to add to this debate. If people want to continue to believe that taxation creates wealth to support State spending and that it is possible to prevent the movement of people or capital in a free world, to achieve an illusive fairness, they are free to do so, they just play into the hands of politicians.
Top post again Dippy. Of course, exchange controls were in force in the UK until the Thatcher Government's first budget in 1979......and what a nirvana Britain had become in the 70s - the fruits of the post-war collectivist consensus.
Top post again Dippy. Of course, exchange controls were in force in the UK until the Thatcher Government's first budget in 1979......and what a nirvana Britain had become in the 70s - the fruits of the post-war collectivist consensus.
Oh so as well as being implicitly accused of seeking to raise corporation tax, and make it more difficult to "create wealth" I and those who have tended to agree with me are now seeking to re-impose FX controls? :-)
Are you and "Dippy" aware that the origin, and ultimate goal of Google's 'location strategy' is to avoid tax in the USA.? Thanks to the scheme they have cooked up, they are sitting on huge piles of cash which they cannot return to the US parent. So I am afraid the argument that Google are simply maximising value for shareholders, and in so doing enriching pension funds, has a great big hole in it. You can dress it all up in ideology if you like, but I'm not playing. It's not a matter of left and right ideology. Google are taking the piss, and you might want to take a closer look before aligning yourself so closely with what they are doing.
Top post again Dippy. Of course, exchange controls were in force in the UK until the Thatcher Government's first budget in 1979......and what a nirvana Britain had become in the 70s - the fruits of the post-war collectivist consensus.
Oh so as well as being implicitly accused of seeking to raise corporation tax, and make it more difficult to "create wealth" I and those who have tended to agree with me are now seeking to re-impose FX controls? :-)
...
? I certainly didn't accuse you or anyone of seeking exchange controls and, as far as I'm concerned, didn't imply it. I was commenting on the fact that a possible solution postulated by Dippenhall had in fact existed in the UK within the living memory and was one part of Government policy since the war - a policy which had culminated in a pretty dismal state of affairs in the 1970s. I don't happen to agree with the majority of your comments on this subject Prague but there's no need to get paranoid about it. If posting contrary views on this subject matter is so disagreeable to you I'll confine myself to other subjects in the future. In the meantime, I’d have a lie down if I were you.
Top post again Dippy. Of course, exchange controls were in force in the UK until the Thatcher Government's first budget in 1979......and what a nirvana Britain had become in the 70s - the fruits of the post-war collectivist consensus.
Oh so as well as being implicitly accused of seeking to raise corporation tax, and make it more difficult to "create wealth" I and those who have tended to agree with me are now seeking to re-impose FX controls? :-)
...
? I certainly didn't accuse you or anyone of seeking exchange controls and, as far as I'm concerned, didn't imply it. I was commenting on the fact that a possible solution postulated by Dippenhall had in fact existed in the UK within the living memory and was one part of Government policy since the war - a policy which had culminated in a pretty dismal state of affairs in the 1970s. I don't happen to agree with the majority of your comments on this subject Prague but there's no need to get paranoid about it. If posting contrary views on this subject matter is so disagreeable to you I'll confine myself to other subjects in the future. In the meantime, I’d have a lie down if I were you.
Sorry, I completely misunderstood the point of your comment, thank you for correcting me, and indeed I'll go and have a lie down.
Are you and "Dippy" aware that the origin, and ultimate goal of Google's 'location strategy' is to avoid tax in the USA
Google are taking the piss, and you might want to take a closer look before aligning yourself so closely with what they are doing.
You are just becoming annoyed now and getting silly.
I'm not aligning myself with anyone, just saying how it is. Pointing out that FX controls is the only way the State can keep money from escaping the tax regime is not really saying you support FX controls is it. I'm just pointing out you that if you can't stop money legally escaping you can't stop tax avoidance and if you want to stop money legally escaping you make it illegal, not pussy foot around with futile tax accounting rules.
Seeking to prevent money from escaping to another tax jurisdiction, or as you would see it tax avoidance, is an honourable stance but it's not a moralistic stance. It's just protecting our national self interests at the expense of another country's self interests. I am no more in favour of our tax revenue being depleted by profits being taxed outside the UK than you are, we are not on different sides, the only difference is that you think there is a simplistic solution by changing our tax laws, and I don't, for reasons I have tried to set out.
So what happens to all this tax free Google money? If they dig a hole in the ground and bury it I agree it is a real waste. Perhaps some of it gets invested back into the business or another business to create wealth, presumably that should be a crime. What is not re-invested gets spent by someone, somewhere and tax is levied on the way.
Some of it might be used to buy UK goods that have VAT on them and increase the UK State's revenue, it might even increase the profitability of the UK companies that produce the goods and even create more jobs that mean more wages that generate more tax. If it gets spent elsewhere then we are not producing enough of what foreigners want to buy and we lose out and it's our fault, sorry society's fault - Don't you get it yet?
“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be "cured" against one's will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.” - CS Lewis
I can recommend "The Darwin Economy: Liberty, Competition and the Common Good" by Robert H Frank, an economics professor at Cornell University. Frank discusses the nature of competitive economic forces in a free market economy.
You may not agree with all of it, but I think you might find it somewhat more insightful about the relationship between individual incentives and the interests of the wider group and hence about the important role of the State in a functioning economic system, than either PJ O'Rourke, Ronald Reagan, George W Bush or CS Lewis.
“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be "cured" against one's will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.” - CS Lewis
We keep electing Labour or Tory governments and actually expect anything to change or get better so I think if CS Lewis was still around he'd class the current electorate as 'imbeciles'. At least we're not in Scotland where the SNP are going to appoint every boy and girl under adult age a state-approved nanny.
“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be "cured" against one's will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.” - CS Lewis
I can recommend "The Darwin Economy: Liberty, Competition and the Common Good" by Robert H Frank, an economics professor at Cornell University. Frank discusses the nature of competitive economic forces in a free market economy.
You may not agree with all of it, but I think you might find it somewhat more insightful about the relationship between individual incentives and the interests of the wider group and hence about the important role of the State in a functioning economic system, than either PJ O'Rourke, Ronald Reagan, George W Bush or CS Lewis.
Ah, the old "common good". Had to make an appearance at some point.
My apologies to you too, I was guilty of not giving your previous post a proper read and thought. The consequence of trying to indulge myself on here while endeavouring to create wealth (I wish). I won't comment further until I have time to think about your latest remarks.
Within the EU there is the free movement of goods, people and services. And a global entity outside of the EU would have to pay duty. So their interest is to find the lowest tax base for vat, corporation tax and paye. But tax rates are not harmonised with Luxembourg, Dublin and Netherlands having reputations for low tax. The EU has a massive aggregate gdp and you don't need exchange controls to enable governments to tax corporations and individuals. You simply need narrower differentials on tax and VAT plus revisiting transfer pricing where currently software (and coffee!) companies are allowed to repatriate up to 95% of profits before tax as a charge on intellectual property which is conveniently parked in a subsidiary on a low tax island like Bermuda.
Obviously the tax code should be simplified but this is not my area and I can imagine the politics would be very complex.
@seth plum quite rightly points out there is a requirement for the efficient and effective provision of services which obviously need to be paid for. Some people play the sovereignty card at this point suggesting that UK voters should decide everything but we don't exist in isolation and our politicians / monarch have signed treaties to this effect
So people goods and services can move freely within the EU and the more they all move, the wealthier we become. What's not to like?!
Once a lemon has been squeezed of all its juice you don’t get more by squeezing harder.
But surely the state has a duty to recover all the juice that has been unfairly syphoned off by people/organisations who think they should do everything to avoid paying their share.
The trap poster are falling into is because tax is politics, never has the title of a thread been so appropriate.
You use the term Tax and Politics as if they are by definition 'bad'. Tax is essential for a modern society to function. Politics is the framework that allows people to debate and choose how tax is levied by taking part in general elections.
Take the mansion tax. A great idea to get more tax from the rich bastards. Problem is a house is not money and there is no money that's moving that can be identified and tax. So we invent a number that we call money to tax. But HMRC don’t accept pretend money so it has to be converted to real money. The real money is money that would have been spent by the mansion owner so you can take away the 20% VAT straight away as a loss of revenue then add all the other points of taxation the money would have yielded tax. Not quite the bonanza we might be led to expect, but hey, it gets politicians votes.
The mansion tax is a bad idea. But it is only an idea. It is currently being debated in the political arena and its proponents are failing to defend it against many arguments including the one you describe above.
The crux of the argument is that of course you can break the cycle by moving the money you control to a different tax cycle in a different country. Because different countries raise tax at different points in the cycle, you can arbitrage by living in a country where there is less tax taken from money receipts and perhaps more on money when spent. You can spend it anywhere else in the World, even on Amazon, and pay tax anywhere else in the World. This is “unfair” because every State wants to have as much money circulating within its control as possible. There are a few solutions:-
The crux of the matter is that if Amazon or Starbucks don't want to pay the appropriate tax on the profits they generate in the different countries they operate they should confine themselves to operating in countries like Afghanistan and other primitive societies where little tax has been raised over the last 200 years and consequently little built in the way of infrastucture such as roads, schools, universities, social housing, hospitals, police forces, law courts etc. No one is saying they shouldn't have the freedom to do that.
When companies like Amazon and Starbucks do business in the UK they are benefiting from the infrastructure built by the billions of tax paid by UK citizens over the last 100 or so years. If they want to use our roads to transport their goods, use a low paid workforce who live in social housing and have their income supplemented by social benefits, be able to not have to employ its own security force to provide 24 hour security for each of its shops and warehouses............I could go on........the list is endless....then they should pay their fair share of the taxes that builds and sustains that infrastructure.
I have nothing more to add to this debate. If people want to continue to believe that taxation creates wealth to support State spending and that it is possible to prevent the movement of people or capital in a free world, to achieve an illusive fairness, they are free to do so, they just play into the hands of politicians.
Taxation creates the environment that allows wealth to be created. That is why it is essential that the State ensures that everyone, individuals and organisations pay their fair share. The idea that wealth is only created by private enterprise and that the state makes no contribution to its creation is a nonsense.
No one is arguing that Amazon and Starbucks should not be free to move their capital and their people to Afghanistan or any other primitive society where the tradition and culture of paying tax is non existent.
Within the EU there is the free movement of goods, people and services. And a global entity outside of the EU would have to pay duty. So their interest is to find the lowest tax base for vat, corporation tax and paye. But tax rates are not harmonised with Luxembourg, Dublin and Netherlands having reputations for low tax. The EU has a massive aggregate gdp and you don't need exchange controls to enable governments to tax corporations and individuals. You simply need narrower differentials on tax and VAT plus revisiting transfer pricing where currently software (and coffee!) companies are allowed to repatriate up to 95% of profits before tax as a charge on intellectual property which is conveniently parked in a subsidiary on a low tax island like Bermuda.
Obviously the tax code should be simplified but this is not my area and I can imagine the politics would be very complex.
@seth plum quite rightly points out there is a requirement for the efficient and effective provision of services which obviously need to be paid for. Some people play the sovereignty card at this point suggesting that UK voters should decide everything but we don't exist in isolation and our politicians / monarch have signed treaties to this effect
So people goods and services can move freely within the EU and the more they all move, the wealthier we become. What's not to like?!
like that post.
Until 1999, much of the rights to free movement of an individual were contained to his status as a worker.
One way to avoid the "Migration for social security" (which I think is the major issue everyone has with open borders in the EU) is to move back to the pre-1999 Position.
I see no reason why people wanting to go and live in another Country cant be challenged on the economic benefit they would bring to their destination domicile
Mundell argues for principle based legislation rather than literal interpretation and indeed that is a current trend in political thinking and in the tax courts. The problem as I see it is whose principles are to be adopted? It's ok as long as they are aligned with your own, but remember there are plenty of people around who think it's ok to fart in a lift.
Taxation may be essential but so is the tenet that taxation should be clear and certain. In our country it is far from so and yes that is Parliament's fault so I think Dippenhall is quite right in arguing that the defeating of Parliamentary intention is not an adequate way to define tax avoidance.
Mundell argues for principle based legislation rather than literal interpretation and indeed that is a current trend in political thinking and in the tax courts. The problem as I see it is whose principles are to be adopted? It's ok as long as they are aligned with your own, but remember there are plenty of people around who think it's ok to fart in a lift.
Taxation may be essential but so is the tenet that taxation should be clear and certain. In our country it is far from so and yes that is Parliament's fault so I think Dippenhall is quite right in arguing that the defeating of Parliamentary intention is not an adequate way to define tax avoidance.
How about this for a principle to be adopted:
If the reasonable man ( a cornerstone of our legal system) finds that a company's explanation of the application of its revenue and cost bases to taxable units of that company is not rational and credible, that is tax avoidance. In other words if the basis of a company's claimed tax liability is built on, for want of a better word, a lie, HMRC should be all over them and you don't need to change the laws to get them, you just need HMRC to be competent and to inform itself. It should for example talk to, or if necessary hire on a consultancy basis, leading managers from the relevant industry to help them understand the industry.
I argue that some companies are getting away with tax avoidance simply because HMRC has not informed itself and prepared the relevant legal case. You were really struggling with my explanation of how Google makes its money, but its no struggle for people who work in the advertising industry. Google's public explanation of where their business is carried out is a big porky. If a company needs porkies in order to be taxed at an unfeasibly low level compared to its earnings, it's a tax avoider. And is no different to the self employed salesman who has, in the opinion of HMRC been making unbelievable claims regarding his business travel expenses (a mate of mine was pursued for months by a muppet from HMRC armed with a DVD map of the UK)
Mundell argues for principle based legislation rather than literal interpretation and indeed that is a current trend in political thinking and in the tax courts. The problem as I see it is whose principles are to be adopted? It's ok as long as they are aligned with your own, but remember there are plenty of people around who think it's ok to fart in a lift.
Taxation may be essential but so is the tenet that taxation should be clear and certain. In our country it is far from so and yes that is Parliament's fault so I think Dippenhall is quite right in arguing that the defeating of Parliamentary intention is not an adequate way to define tax avoidance.
I think I'd slightly disagree with your interpretation of the problem with a principles based approach to regulation or taxation. It's very clear whose principles should be adopted. Society or the relevant community determines what it wishes to achieve and then faces a choice between whether to adopt a detailed rules based approach or one which is more principles based. We often do this implicitly, sometimes even subconsciously.
These are simply different ways in which a group might seek to achieve the same thing. Each alternative has advantages and disadvantages, some of which are obvious, but others less so. Most of those promoting the benefits of a principles based approach do so for two main reasons.
First, they recognise the importance of culture and values, or informally agreed conventions, in the success of any society or group, i.e., the individuals in the group behave in a way which is consistent with the group's objectives and values not simply because they are legally required to, but because they choose to. You might call this peer pressure or a simple wish to conform and to avoid being "cast out". A principles based system of regulation or taxation is designed to require an understanding of its objectives and a compliance with them. It then places a obligation on the individual or entity to observe the spirit of the law. In contrast, a rules based approach simply requires an adherence to the rules and this can be a very different thing.
The importance of culture and values, in combination with the enforcement of property rights and the rule of law, is a much more important factor in the success of free market economics in the western democracies than appears to be understood by the loony free-market right. It is an important part of the explanation of why some economies succeed while others fail.
Second, those in favour of a principles based approach would emphasis the literal impossibility of building a rule book which captures what is intended by the tax system, in every conceivable situation or scenario. Indeed, once it is culturally embedded that what matters is a literal interpretation of the rule book and not the spirit, it is then open season for creative individuals and the firms which employ them to find innovative ways to circumvent the intentions of the rule book and hence of society. The rule book then simply grows for ever without achieving its objective. Economist John Kay explains this point in a very funny article here.
Put simply, a principles based approach is a means to the same end as one which is rules based and its objectives come from the same place, the society to which it applies. It places an emphasis on the importance of culture and values in implementing the principles which have been agreed, through democratic process, in contrast to a choice which focuses on the development of a detailed set of rules which are then applied and policed without reference to what is intended or right and wrong. There is no simple answer here, but the choice being made is an important one.
As you imply, this same choice applies to many aspects of our daily lives. Most people don't fart in a lift because it's not culturally acceptable. It's not the done thing. That's the view of the majority of our society. Not farting in lifts is a behaviour which has become part of our culture. We have many such customs and practices, some of which are much more important than others. This is not mushy philosophical stuff. When we travel to other parts of the world it is sometimes the case that behaviours we consider normal are considered rude or offensive. We quickly find out, sometimes subtly, and typically adjust, quickly and naturally because we are wired to. However, if our cultural conventions begin to break down, society faces a problem and then a choice.
Do we simply accept that it's OK to fart in a lift? That's one option. Or pass a law that addresses the problem? But how would you define a fart? Is it about noise or odour? And what about farts that are simply unavoidable? Does age matter? Would it be possible to carry a doctor's certificate which confirmed that you had a medical reason for being unable to control your wind?
We'd soon have an army of lawyers specialising in this area of law!! Much easier to deal with the issue "culturally"; so long as it culturally unacceptable to break wind in public, the problem will contained, but if it ever became the done thing all hell would break loose!!
Tongue in cheek, but the principle is a much more important one than we generally realise. We allow our culture and our values to erode at our peril. Our banks went down that slippery slope in the period preceding the credit crisis and both we and they will be paying the price for some years to come. Its our value system which is at heart of this discussion, not whether we should pay more or less in tax or whether the state should be large or small or even how the tax system should be designed. That's my understanding of why @PragueAddick started the thread anyway and, for what its worth, I agree with him completely.
Half time and pissed off so just visited this thread. What a surprise.
So John Kay agrees me then.
We have a tax system which has developed exactly as described in John Kay’s satirical dress code. No one but a few experts can interpret the tax rules, just like the unworkable dress code. I have argued for a simpler system, only because it means there can be no arguments about interpretation of what is taxable. Exactly what John Kay says - you can only have a principles based system that is simple.
So is anyone still arguing that adding yet another new rule to an unworkable system is the solution, or is there now consensus that we need a radically revised system that applies simple rules no one can argue with?
Half time and pissed off so just visited this thread. What a surprise.
So John Kay agrees me then.
We have a tax system which has developed exactly as described in John Kay’s satirical dress code. No one but a few experts can interpret the tax rules, just like the unworkable dress code. I have argued for a simpler system, only because it means there can be no arguments about interpretation of what is taxable. Exactly what John Kay says - you can only have a principles based system that is simple.
So is anyone still arguing that adding yet another new rule to an unworkable system is the solution, or is there now consensus that we need a radically revised system that applies simple rules no one can argue with?
We need a simpler tax system and then a real determination to ensure that everybody pays the tax they should within that framework, along with the power to enforce, be it implicit or explicit.
There are some posters who have argued that it is right for companies to do everything they can to minimise the tax they pay. If that's the culture you'll end up with a complex system as it necessarily evolves to prevent avoidance.
Ironically, a complex tax systems suits those who are happy to avoid tax wherever they can while penalising those who are happy to pay the tax due given their income.
These same principles apply to many areas of regulation.
Half time and pissed off so just visited this thread. What a surprise.
So John Kay agrees me then.
We have a tax system which has developed exactly as described in John Kay’s satirical dress code. No one but a few experts can interpret the tax rules, just like the unworkable dress code. I have argued for a simpler system, only because it means there can be no arguments about interpretation of what is taxable. Exactly what John Kay says - you can only have a principles based system that is simple.
So is anyone still arguing that adding yet another new rule to an unworkable system is the solution, or is there now consensus that we need a radically revised system that applies simple rules no one can argue with?
There are some posters who have argued that it is right for companies to do everything they can to minimise the tax they pay. If that's the culture you'll end up with a complex system as it necessarily evolves to prevent avoidance.
It is not a matter of "culture", it is their immutable legal (fiduciary) duty to their shareholders to do so lawfully.
Do we simply accept that it's OK to fart in a lift? That's one option. Or pass a law that addresses the problem? But how would you define a fart? Is it about noise or odour? And what about farts that are simply unavoidable? Does age matter? Would it be possible to carry a doctor's certificate which confirmed that you had a medical reason for being unable to control your wind?
We'd soon have an army of lawyers specialising in this area of law!! Much easier to deal with the issue "culturally"; so long as it culturally unacceptable to break wind in public, the problem will contained, but if it ever became the done thing all hell would break loose!!
Sheer class. As for principle verses rules, well we all have football in common, and it would be within the rules to go for a goal at times following an injury, when commonly you give it back to the opposition. Most involved in football say return the ball and start again, but there are some who still think and say 'fuggit, play on'.
Half time and pissed off so just visited this thread. What a surprise.
So John Kay agrees me then.
We have a tax system which has developed exactly as described in John Kay’s satirical dress code. No one but a few experts can interpret the tax rules, just like the unworkable dress code. I have argued for a simpler system, only because it means there can be no arguments about interpretation of what is taxable. Exactly what John Kay says - you can only have a principles based system that is simple.
So is anyone still arguing that adding yet another new rule to an unworkable system is the solution, or is there now consensus that we need a radically revised system that applies simple rules no one can argue with?
There are some posters who have argued that it is right for companies to do everything they can to minimise the tax they pay. If that's the culture you'll end up with a complex system as it necessarily evolves to prevent avoidance.
It is not a matter of "culture", it is their immutable legal (fiduciary) duty to their shareholders to do so lawfully.
We'll have to agree to disagree. I don't think its quite that simple.
Half time and pissed off so just visited this thread. What a surprise.
So John Kay agrees me then.
We have a tax system which has developed exactly as described in John Kay’s satirical dress code. No one but a few experts can interpret the tax rules, just like the unworkable dress code. I have argued for a simpler system, only because it means there can be no arguments about interpretation of what is taxable. Exactly what John Kay says - you can only have a principles based system that is simple.
So is anyone still arguing that adding yet another new rule to an unworkable system is the solution, or is there now consensus that we need a radically revised system that applies simple rules no one can argue with?
There are some posters who have argued that it is right for companies to do everything they can to minimise the tax they pay. If that's the culture you'll end up with a complex system as it necessarily evolves to prevent avoidance.
It is not a matter of "culture", it is their immutable legal (fiduciary) duty to their shareholders to do so lawfully.
We'll have to agree to disagree. I don't think its quite that simple.
Half time and pissed off so just visited this thread. What a surprise.
So John Kay agrees me then.
We have a tax system which has developed exactly as described in John Kay’s satirical dress code. No one but a few experts can interpret the tax rules, just like the unworkable dress code. I have argued for a simpler system, only because it means there can be no arguments about interpretation of what is taxable. Exactly what John Kay says - you can only have a principles based system that is simple.
So is anyone still arguing that adding yet another new rule to an unworkable system is the solution, or is there now consensus that we need a radically revised system that applies simple rules no one can argue with?
There are some posters who have argued that it is right for companies to do everything they can to minimise the tax they pay. If that's the culture you'll end up with a complex system as it necessarily evolves to prevent avoidance.
It is not a matter of "culture", it is their immutable legal (fiduciary) duty to their shareholders to do so lawfully.
We'll have to agree to disagree. I don't think its quite that simple.
Indeed, as Google have demonstrated. Again I repeat, they are accused of avoiding tax primarily in the US, and have piles of cash offshore in various jurisdictions which are not being returned to shareholders
There are some posters who have argued that it is right for companies to do everything they can to minimise the tax they pay. If that's the culture you'll end up with a complex system as it necessarily evolves to prevent avoidance.
It is not a matter of "culture", it is their immutable legal (fiduciary) duty to their shareholders to do so lawfully.
And it is the immutable legal (fiduciary) duty to its tax paying citizens for the state to lawfully ensure that no individuals or companies avoid paying their fair share of the tax burden.
Comments
Most people won't though because often these companies are cheaper and/or more convenient and I certainly include myself in that.
Private tutors, Public school, Malvern College, Oxford, Cambridge universities, lay preacher, Christian apologist, sometime atheist following WW1 enlistment as an officer, served in the Somme, a lifetime in academia.
I earn £100.
I pay 20% in tax = £20
I pay 12% in National Insurance = £12
My employer pays 13.8% National Insurance on the same earnings = £13.80
£80 left in my pocket with £45.80 in tax so far.
I spend my £80 on some clothes from John Lewis
Of the £80 only £66 goes to John Lewis, £13 is VAT that they pass on to HMRC, £58.80 tax so far.
John Lewis pay corporation tax of say 21% on their profit say £10 yielding £2 in tax, £60.80 tax so far.
The £8 of profits left is paid as a dividend to shareholders and tax is deducted at £20% = £1.60, that makes £62.40 in tax.
The £6.40 left is received by a pensioner who buys a newspaper of which 78p is VAT giving £63.18 and so the cycle of tax goes on and on, but sooner or later you are trying to tax that £100 more than once.
How about creating another £100, does that sound like a better idea? Who creates the new £100? Not the State, they just take possession of money. New money is created by the money the State is not using left over after tax is taken. The one certainty that happens when you tax more is to reduce the amount available to create new £100s.
If John Lewis had the choice of avoiding the £2 of corporate tax who does it affect? It will just increase the dividends so the pensioner gets £8.40 taxable instead of £6.40 taxable. The £2 hasn’t avoided being taxed, it’s just taxed somewhere else. Stop buying goods from any business and you reduce it's profits and the tax payable on the profits. As most of our pension funds and insurance companies invest in overseas companies, that might include very profitable companies like Amazon, it also reduces the dividends received that we ultimately spend in the UK. It doesn't increase the State's revenue, but if boycotting Amazon makes you feel better then fine.
Once a lemon has been squeezed of all its juice you don’t get more by squeezing harder. But the State does its best. Even if you are poor and receive financial support, the State will look to apply tax on the tax that has been paid out as welfare payments.
Excuse me if I don’t lather at the mouth at the idea that there is rabid tax avoidance going on.
The trap poster are falling into is because tax is politics, never has the title of a thread been so appropriate.
Take the mansion tax. A great idea to get more tax from the rich bastards. Problem is a house is not money and there is no money that's moving that can be identified and tax. So we invent a number that we call money to tax. But HMRC don’t accept pretend money so it has to be converted to real money. The real money is money that would have been spent by the mansion owner so you can take away the 20% VAT straight away as a loss of revenue then add all the other points of taxation the money would have yielded tax. Not quite the bonanza we might be led to expect, but hey, it gets politicians votes.
The crux of the argument is that of course you can break the cycle by moving the money you control to a different tax cycle in a different country. Because different countries raise tax at different points in the cycle, you can arbitrage by living in a country where there is less tax taken from money receipts and perhaps more on money when spent. You can spend it anywhere else in the World, even on Amazon, and pay tax anywhere else in the World. This is “unfair” because every State wants to have as much money circulating within its control as possible. There are a few solutions:-
1 People choose not to move the money to another tax environment - moral icons who increase the taxes paid somewhere else
2 Legislate to ban the movement of money to another tax environment - bad idea for business and savers
3. Legislate to ban citizens spending money in another tax environment - What about if I'm on holiday?
In the free world we have freedom of travel and freedom to invest anywhere. Arguing for a “fair” tax system is arguing for commercial isolation that allows 100% control of the money circulation within a State. This is how the ultimate fairness of communist States is achieved where it is illegal to leave the country or take money out.
First of all sort out how you raise tax efficiently, then decide how the State spends it. They are two absolutely different debates being mixed up.
I have nothing more to add to this debate. If people want to continue to believe that taxation creates wealth to support State spending and that it is possible to prevent the movement of people or capital in a free world, to achieve an illusive fairness, they are free to do so, they just play into the hands of politicians.
Of course, exchange controls were in force in the UK until the Thatcher Government's first budget in 1979......and what a nirvana Britain had become in the 70s - the fruits of the post-war collectivist consensus.
Are you and "Dippy" aware that the origin, and ultimate goal of Google's 'location strategy' is to avoid tax in the USA.? Thanks to the scheme they have cooked up, they are sitting on huge piles of cash which they cannot return to the US parent. So I am afraid the argument that Google are simply maximising value for shareholders, and in so doing enriching pension funds, has a great big hole in it. You can dress it all up in ideology if you like, but I'm not playing. It's not a matter of left and right ideology. Google are taking the piss, and you might want to take a closer look before aligning yourself so closely with what they are doing.
I certainly didn't accuse you or anyone of seeking exchange controls and, as far as I'm concerned, didn't imply it.
I was commenting on the fact that a possible solution postulated by Dippenhall had in fact existed in the UK within the living memory and was one part of Government policy since the war - a policy which had culminated in a pretty dismal state of affairs in the 1970s.
I don't happen to agree with the majority of your comments on this subject Prague but there's no need to get paranoid about it.
If posting contrary views on this subject matter is so disagreeable to you I'll confine myself to other subjects in the future.
In the meantime, I’d have a lie down if I were you.
Google are taking the piss, and you might want to take a closer look before aligning yourself so closely with what they are doing.
You are just becoming annoyed now and getting silly.
I'm not aligning myself with anyone, just saying how it is. Pointing out that FX controls is the only way the State can keep money from escaping the tax regime is not really saying you support FX controls is it. I'm just pointing out you that if you can't stop money legally escaping you can't stop tax avoidance and if you want to stop money legally escaping you make it illegal, not pussy foot around with futile tax accounting rules.
Seeking to prevent money from escaping to another tax jurisdiction, or as you would see it tax avoidance, is an honourable stance but it's not a moralistic stance. It's just protecting our national self interests at the expense of another country's self interests. I am no more in favour of our tax revenue being depleted by profits being taxed outside the UK than you are, we are not on different sides, the only difference is that you think there is a simplistic solution by changing our tax laws, and I don't, for reasons I have tried to set out.
So what happens to all this tax free Google money? If they dig a hole in the ground and bury it I agree it is a real waste. Perhaps some of it gets invested back into the business or another business to create wealth, presumably that should be a crime. What is not re-invested gets spent by someone, somewhere and tax is levied on the way.
Some of it might be used to buy UK goods that have VAT on them and increase the UK State's revenue, it might even increase the profitability of the UK companies that produce the goods and even create more jobs that mean more wages that generate more tax. If it gets spent elsewhere then we are not producing enough of what foreigners want to buy and we lose out and it's our fault, sorry society's fault - Don't you get it yet?
You may not agree with all of it, but I think you might find it somewhat more insightful about the relationship between individual incentives and the interests of the wider group and hence about the important role of the State in a functioning economic system, than either PJ O'Rourke, Ronald Reagan, George W Bush or CS Lewis.
My apologies to you too, I was guilty of not giving your previous post a proper read and thought. The consequence of trying to indulge myself on here while endeavouring to create wealth (I wish). I won't comment further until I have time to think about your latest remarks.
The EU has a massive aggregate gdp and you don't need exchange controls to enable governments to tax corporations and individuals. You simply need narrower differentials on tax and VAT plus revisiting transfer pricing where currently software (and coffee!) companies are allowed to repatriate up to 95% of profits before tax as a charge on intellectual property which is conveniently parked in a subsidiary on a low tax island like Bermuda.
Obviously the tax code should be simplified but this is not my area and I can imagine the politics would be very complex.
@seth plum quite rightly points out there is a requirement for the efficient and effective provision of services which obviously need to be paid for.
Some people play the sovereignty card at this point suggesting that UK voters should decide everything but we don't exist in isolation and our politicians / monarch have signed treaties to this effect
So people goods and services can move freely within the EU and the more they all move, the wealthier we become.
What's not to like?!
https://www.youtube.com/watch?feature=player_detailpage&v=ST_yofEmPPY
Until 1999, much of the rights to free movement of an individual were contained to his status as a worker.
One way to avoid the "Migration for social security" (which I think is the major issue everyone has with open borders in the EU) is to move back to the pre-1999 Position.
I see no reason why people wanting to go and live in another Country cant be challenged on the economic benefit they would bring to their destination domicile
Taxation may be essential but so is the tenet that taxation should be clear and certain. In our country it is far from so and yes that is Parliament's fault so I think Dippenhall is quite right in arguing that the defeating of Parliamentary intention is not an adequate way to define tax avoidance.
If the reasonable man ( a cornerstone of our legal system) finds that a company's explanation of the application of its revenue and cost bases to taxable units of that company is not rational and credible, that is tax avoidance. In other words if the basis of a company's claimed tax liability is built on, for want of a better word, a lie, HMRC should be all over them and you don't need to change the laws to get them, you just need HMRC to be competent and to inform itself. It should for example talk to, or if necessary hire on a consultancy basis, leading managers from the relevant industry to help them understand the industry.
I argue that some companies are getting away with tax avoidance simply because HMRC has not informed itself and prepared the relevant legal case. You were really struggling with my explanation of how Google makes its money, but its no struggle for people who work in the advertising industry. Google's public explanation of where their business is carried out is a big porky. If a company needs porkies in order to be taxed at an unfeasibly low level compared to its earnings, it's a tax avoider. And is no different to the self employed salesman who has, in the opinion of HMRC been making unbelievable claims regarding his business travel expenses (a mate of mine was pursued for months by a muppet from HMRC armed with a DVD map of the UK)
If it looks like a duck, etc
These are simply different ways in which a group might seek to achieve the same thing. Each alternative has advantages and disadvantages, some of which are obvious, but others less so. Most of those promoting the benefits of a principles based approach do so for two main reasons.
First, they recognise the importance of culture and values, or informally agreed conventions, in the success of any society or group, i.e., the individuals in the group behave in a way which is consistent with the group's objectives and values not simply because they are legally required to, but because they choose to. You might call this peer pressure or a simple wish to conform and to avoid being "cast out". A principles based system of regulation or taxation is designed to require an understanding of its objectives and a compliance with them. It then places a obligation on the individual or entity to observe the spirit of the law. In contrast, a rules based approach simply requires an adherence to the rules and this can be a very different thing.
The importance of culture and values, in combination with the enforcement of property rights and the rule of law, is a much more important factor in the success of free market economics in the western democracies than appears to be understood by the loony free-market right. It is an important part of the explanation of why some economies succeed while others fail.
Second, those in favour of a principles based approach would emphasis the literal impossibility of building a rule book which captures what is intended by the tax system, in every conceivable situation or scenario. Indeed, once it is culturally embedded that what matters is a literal interpretation of the rule book and not the spirit, it is then open season for creative individuals and the firms which employ them to find innovative ways to circumvent the intentions of the rule book and hence of society. The rule book then simply grows for ever without achieving its objective. Economist John Kay explains this point in a very funny article here.
Put simply, a principles based approach is a means to the same end as one which is rules based and its objectives come from the same place, the society to which it applies. It places an emphasis on the importance of culture and values in implementing the principles which have been agreed, through democratic process, in contrast to a choice which focuses on the development of a detailed set of rules which are then applied and policed without reference to what is intended or right and wrong. There is no simple answer here, but the choice being made is an important one.
As you imply, this same choice applies to many aspects of our daily lives. Most people don't fart in a lift because it's not culturally acceptable. It's not the done thing. That's the view of the majority of our society. Not farting in lifts is a behaviour which has become part of our culture. We have many such customs and practices, some of which are much more important than others. This is not mushy philosophical stuff. When we travel to other parts of the world it is sometimes the case that behaviours we consider normal are considered rude or offensive. We quickly find out, sometimes subtly, and typically adjust, quickly and naturally because we are wired to. However, if our cultural conventions begin to break down, society faces a problem and then a choice.
Do we simply accept that it's OK to fart in a lift? That's one option. Or pass a law that addresses the problem? But how would you define a fart? Is it about noise or odour? And what about farts that are simply unavoidable? Does age matter? Would it be possible to carry a doctor's certificate which confirmed that you had a medical reason for being unable to control your wind?
We'd soon have an army of lawyers specialising in this area of law!! Much easier to deal with the issue "culturally"; so long as it culturally unacceptable to break wind in public, the problem will contained, but if it ever became the done thing all hell would break loose!!
Tongue in cheek, but the principle is a much more important one than we generally realise. We allow our culture and our values to erode at our peril. Our banks went down that slippery slope in the period preceding the credit crisis and both we and they will be paying the price for some years to come. Its our value system which is at heart of this discussion, not whether we should pay more or less in tax or whether the state should be large or small or even how the tax system should be designed. That's my understanding of why @PragueAddick started the thread anyway and, for what its worth, I agree with him completely.
So John Kay agrees me then.
We have a tax system which has developed exactly as described in John Kay’s satirical dress code. No one but a few experts can interpret the tax rules, just like the unworkable dress code. I have argued for a simpler system, only because it means there can be no arguments about interpretation of what is taxable. Exactly what John Kay says - you can only have a principles based system that is simple.
So is anyone still arguing that adding yet another new rule to an unworkable system is the solution, or is there now consensus that we need a radically revised system that applies simple rules no one can argue with?
There are some posters who have argued that it is right for companies to do everything they can to minimise the tax they pay. If that's the culture you'll end up with a complex system as it necessarily evolves to prevent avoidance.
Ironically, a complex tax systems suits those who are happy to avoid tax wherever they can while penalising those who are happy to pay the tax due given their income.
These same principles apply to many areas of regulation.
As for principle verses rules, well we all have football in common, and it would be within the rules to go for a goal at times following an injury, when commonly you give it back to the opposition.
Most involved in football say return the ball and start again, but there are some who still think and say 'fuggit, play on'.
It is not a matter of "culture", it is their immutable legal (fiduciary) duty to their shareholders to do so lawfully.
And it is the immutable legal (fiduciary) duty to its tax paying citizens for the state to lawfully ensure that no individuals or companies avoid paying their fair share of the tax burden.