FOREIGN IT COMPANIES AVOIDING THEIR TAX LIABILITIES IN THE UK – Once again the UK Government, like a petulant child, is jumping up and down over the ways foreign IT companies, such as Google and Microsoft are avoiding paying corporation tax, even though they are all awarded huge and lucrative UK Government contracts.
The Government is now considering letting the Public Accounts Committee grill these IT companies into explaining why they pay so little tax on the vast profits accrued from their UK operations.
Looking at the accounts in the last 5 years it was discovered that nice of the largest IT suppliers to the Government made a total of £62 billion in sales and yet paid a collective sum of just £527 million to the treasury in corporation tax.
A couple of days ago I wrote a similar article which specifically targeted Google and how it manages to reduce its UK tax liability to almost nothing; through a series of clever accounting practices that the UK Government allows. This is termed as ‘tax avoidance’ and is perfectly legal.
The question on most people’s minds is what does the UK Government allow these foreign companies to pay so little? The real truth is that Government is run by non-professionals who often do not have a clue what they are doing. For those of you who like this in its most basic form it’s call ‘incompetence’.
It would be a stretch of the imagination to think that any government official is fully aware of tax law or how to implement it. Therefore the Government employ outside expert consultants such as KPMG. This is in itself a conflict of interests as KPMG will help Government produce legislation that they are able to manipulate on behalf of their clients.
Does this sound a little farfetched? Well consider this fact:
Jonathan Bridges from KPMG spent six months advising the Treasuring on the new ‘Patent Box’ law. When the law was enacted his returned to KPMG and the firm then produced a glossy brochure for its existing and potential clients titled ‘Patent Box: What’s in it for you?’
The brochure explained how corporations could reduce their tax liability down to just 10% providing clients with a significant ‘effective tax rate’ and ‘tax savings’.
There is, quite frankly, no organization in the world as incompetent as Government and this is not solely directed at the UK Government but indeed all Government’s. It is often necessary and more cost effective to employ outside expertise but more often than not this goes hand in hand with a conflict of interest.
Margaret Hodge, Committee Chairman of the Public Accounts Committee (PAC) has announced that it was planning to investigate Government contracts this coming autumn, of which are awarded annually to large IT corporations such as Google, Microsoft, IBM and Dell.
Margaret Hodge admits there is growing public resentment and feels, rightly so, that everyone should pay their fair share of taxes; especially those who benefit largely from Government contracts that are paid for by the taxpayer.
Again the real problem to tax avoidance is that taxation is highly complex; it’s like a puzzle, wrapped in a mystery, inside an enigma and due to this complexity it is easily abused by those who write it … outside consultancy firms working on behalf of corporate clients – it’s akin to letting prisoners run the jail.
The scale of the problem is that the Government simply cannot see the value of employing full time experts on taxation or it is viewed as non-cost effective. It is, as the Government sees it, cheaper to pay for an outside expert rather than employing one full time. This is of course folly and it is why large corporations, such as Google, Microsoft, IBM and Dell, all of whom have large lucrative Government contracts, are able to avoid paying tax of the vast profits they earn.
If the PAC does go ahead with its investigation it is a certainly that any result will simply turn up the failings of Government systems and not any wrongdoing by the corporations or their accounts.
The fact is that nobody likes to pay tax and the corporations are in the position to afford the best expert advice on avoiding paying tax wherever possible; this is simply good business practice and one that their shareholders demand.
Unless the UK and other Government are willing to employ full time in-house experts then the abuse of tax legislation will continue and regardless of whether it is immoral is inconsequential.
Note how the Government is simply trying to place the blame on the corporations in order to cover up their own incompetence. Remember the corporations are only doing what is expected of them by their shareholders and doing a very good job in the process. Meanwhile the Government continues to fail in every aspect and instead of being able to come up with a solution to ensure tax liabilities are met it simply cries wolf and places the blame elsewhere.
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