Author Topic: How large firms escape UK corporation tax  (Read 1989 times)

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The Prophet

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How large firms escape UK corporation tax
« on: November 14, 2012, 10:20:31 am »
Starbucks, Google and Amazon are just a few of the large multi-national firms that pay little or no corporation tax on profits made by their UK operations.
Recent news items quote the level of sales, but it is the profit that incurs tax and big companies use several legal means to keep any tax due to HMRC to the bare minimum.
British corporation tax is between 20% and 25% in 2012 depending on a company's size.
How do the tax accountants reduce the tax due?

Royalty agreements
The parent company can have a separate division based in a low tax country that charges its British business for a licence to use its name, brand and logo.
This can be as high as 6% of UK sales.
That reduces the UK profit and UK corporation tax liability by 6% - a huge figure.

Trading losses
These can be carried forward, so a paper loss in one year, due to heavy marketing for example,  can be used to offset any profits in following years.

Debt financing
Interest payments on debt are tax-deductible.
So large firms finance their British businesses with loans from the parent company based in a low tax country such as Ireland or Holland.
The parent company can set the interest rate on the loan to whatever it wants, whilst keeping it "reasonable level" so HMRC don't smell a rat.

These large companies make a big noise about the tax revenues their operations generate for HMRC such as payroll taxes, business rates.
Some observers suggest that if the corporation taxes were paid in full, then staff costs could be reduced, dividends to shareholders cut and prices increased to cancel out the revenue lost. 
All of which would have an adverse effect on the UK economy.