[Archived] Government Benefits

[thenodrog]

Tax evasion costs the British economy £69.9 billion a year according to November 2011 figures. Cutting that figure by 50 per cent would wipe out the public deficit in a short time and would enable the damaging cuts to public services and the armed forces to be reversed.

But then it's easier and politically more acceptable to the right to target the poor and weak.

It's a delicate balance though isn't it? Tax the wealth makers too hard and they'll clear off and the revenue will get sod all. So where would benefits money come from then?

It's quite ironic that the accepted tax havens around Europe (Lichtenstein / Switzerland / Monaco / Jersey / Luxembourg etc are affluent places where most of us would like to live.

[SydneyRover]

It's quite ironic that the accepted tax havens around Europe (Lichtenstein / Switzerland / Monaco / Jersey / Luxembourg etc are affluent places where most of us would like to live.

Yes, and places with more redistributive economies (eg the Scandinavian countries) are absolute hell holes where none of us would want to settle.

It's a delicate balance though isn't it? Tax the wealth makers too hard and they'll clear off and the revenue will get sod all. So where would benefits money come from then?

That's why cross border agreements such as the proposed one on the financial transactions (aka "Robin Hood) tax are essential.

Although I suspect there's far too many corporate interests behind most of the continents main political parties to actually make it happen.

[Mike E]

I've always wondered why we bother with haulage on the road these days. Would it not be better to build an extra carriage or two for passenger trains, but for various goods rather than people? Much quicker, less damaging to the roads (and indeed the goods on board), more vehicles OFF the road therefore making general travel quicker, more environmentally friendly and a good way to get those dangerous lorry-driving arseholes off the road.

A generalisation, I know but a valid one judging by every trip involving a motorway I've made.

[Baz]

It's a delicate balance though isn't it? Tax the wealth makers too hard and they'll clear off and the revenue will get sod all. So where would benefits money come from then?

It's quite ironic that the accepted tax havens around Europe (Lichtenstein / Switzerland / Monaco / Jersey / Luxembourg etc are affluent places where most of us would like to live.

Make them pay the amount they are supposed to, and the deficit will paid back quickly, then taxes can be dropped all round. No more, but no less. Those that work in the cash in hand markets (some builders etc) the same.

If they clear off, I say let them go, im willing to bet many who say that they will, won't go.

I've always wondered why we bother with haulage on the road these days. Would it not be better to build an extra carriage or two for passenger trains, but for various goods rather than people? Much quicker, less damaging to the roads (and indeed the goods on board), more vehicles OFF the road therefore making general travel quicker, more environmentally friendly and a good way to get those dangerous lorry-driving arseholes off the road.

A generalisation, I know but a valid one judging by every trip involving a motorway I've made.

The Internet boom has seen an explosion in goods being delivered by courier, surely a lot of this traffic could be avoided by having centralised depots for private collection? It's far more efficient to have 1 delivery to a depot than having 10 vans trying to deliver whilst your at work.

[jim mk2]

The Torygraph is reporting that US coffee chain Starbucks, which is valued at £25bn by the stockmarket, paid nothing in UK corporation tax last year, despite having sales of £398m.

[Baz]

The Torygraph is reporting that US coffee chain Starbucks, which is valued at £25bn by the stockmarket, paid nothing in UK corporation tax last year, despite having sales of £398m.

In April George Osbourne said he was appalled by the levels of tax avoidance. Has there been any new policies brought through since then?

[Steve Moss]

The Torygraph is reporting that US coffee chain Starbucks, which is valued at £25bn by the stockmarket, paid nothing in UK corporation tax last year, despite having sales of £398m.

Which is half the equation. Gross receipts is not the end point but the beginning. What were Starbucks expenses? If the net profit (receipts minus expenses) on a cup of coffee is $0 then there is nothing to tax. Of course the existence of Starbucks and all other retail business is a benefit to society as it gives rise to other taxes, such as employee income and sales tax (which I assume were paid by the customer at time of purchase and employee as part of his or her annual tax filing).

What I think liberals sometimes forgets is that in an unregulated, unrestricted market with no barriers to entry, profits tend to fall towards $0. The existence of a net profit is an inducement to potential competitors to enter the market, which results in competition which results in price cutting which results in profits approaching $0. The real benefit of business in a capitalist system is: 1) the cost-effective delivery of goods and services; and, 2) employment outside the public sector.

[SydneyRover]

Which is half the equation. Gross receipts is not the end point but the beginning. What were Starbucks expenses? If the net profit (receipts minus expenses) on a cup of coffee is $0 then there is nothing to tax. Of course the existence of Starbucks and all other retail business is a benefit to society as it gives rise to other taxes, such as employee income and sales tax (which I assume were paid by the customer at time of purchase and employee as part of his or her annual tax filing).

What I think liberals sometimes forgets is that in an unregulated, unrestricted market with no barriers to entry, profits tend to fall towards $0. The existence of a net profit is an inducement to potential competitors to enter the market, which results in competition which results in price cutting which results in profits approaching $0. The real benefit of business in a capitalist system is: 1) the cost-effective delivery of goods and services; and, 2) employment outside the public sector.

Starbucks regularly reported losses to the UK taxman so didn't pay any taxes (which is fair enough in line with tax law), however transcripts of conversations with investors and analysts regularly mentioned the UK side of their chain as being profitable and even an example for the US business to follow.

Personally I would be very surprised if they were a loss making enterprise in the UK.

[dave birch]

Reading the newsreports Starbucks have been involved in transfer pricing; using income from one section of the business to pay for work done by other parts, with the end result being a reduction (or elimination) of profits in the first section.

I'll bet good money that they were paying more than the going rate for the work done by their partner businesses.

Finally, who, in their right mind, would buy a Starbucks coffee? Horrible stuff.

[Steve Moss]

Reading the newsreports Starbucks have been involved in transfer pricing; using income from one section of the business to pay for work done by other parts, with the end result being a reduction (or elimination) of profits in the first section.

I'll bet good money that they were paying more than the going rate for the work done by their partner businesses.

Finally, who, in their right mind, would buy a Starbucks coffee? Horrible stuff.

I agree with you that I don't particularly care for Starbucks coffee. It tastes like burnt cigarettes to me.

I'm somewhat confused by the transfer pricing allegation. If Starbucks is deliberately undervaluing its profits via sweetheart deals with other companies then: 1) it would be logical to assume that their shareholders would be cheated of potential dividends, which would be self-destructive as it drives down the value of the stock; and, 2) the companies getting the sweetheart deal would now have and pay tax on the profit, so where is the gain?

[dave birch]

Steve, transfer pricing usually means a company tranfers "profit" from high taxing environment to a lower one.

It's not undervaluing, it's overpaying (usually) for something from another part of the organisation. In this case Starbucks was having it's coffee beans roasted in Holland (there was something else that I can't reacall).

I'm not accusing Starbucks of overpaying, but it does transfer money from the UK to Holland, which may (or may not) have a more favourable tax regime.

[Paul]

Which is half the equation. Gross receipts is not the end point but the beginning. What were Starbucks expenses? If the net profit (receipts minus expenses) on a cup of coffee is $0 then there is nothing to tax. Of course the existence of Starbucks and all other retail business is a benefit to society as it gives rise to other taxes, such as employee income and sales tax (which I assume were paid by the customer at time of purchase and employee as part of his or her annual tax filing).

What I think liberals sometimes forgets is that in an unregulated, unrestricted market with no barriers to entry, profits tend to fall towards $0. The existence of a net profit is an inducement to potential competitors to enter the market, which results in competition which results in price cutting which results in profits approaching $0. The real benefit of business in a capitalist system is: 1) the cost-effective delivery of goods and services; and, 2) employment outside the public sector.

I appreciate your arguement but can't believe you feel this a serious proposition. Starbucks is unwilling to contribute to UK tax revenues which fund the services the country provides. Perhaps we should consider banning Starbucks from using the road network or charge the company on a per mile basis for using the infrastructure which delivers both their product and customer to store?

Your theory suggests the customer should pay for both the coffee and the provision of the services which help Starbucks make profit.

Incidentally how is it Starbucks get away with squalid, dirty premises and a crap product? I would never use them.

This tax evasion is a very serious issue. Amazon based in Luxembourg with 130 employees had a turnover of £6.5billion in 2010. The UK arm generated £147 million and employed 2265 people in the same year. UK sales were in the region of £9 billion in the past three years. It is quite clear Amazon is cheating the British public, I returned my Amazon credit card and closed my account about six weeks ago.

In the period 2008-2011 Amazon UK sales were in the region of £9 billion. Presuming the company makes a similar margin in the UK to that in the US would yield net profits of £300 million and corporation tax of £100 million. Since 2003 Amazon has paid £3 million in UK tax with £1.9m being in 2011.

I would suggest to anyone trying to defend Starbucks and Amazon these companies are no better than the scrounging, workshy, lazy dollopers the right take delight in criticising.

Don't buy product from these companies. Amazon have destroyed the UK book market along with hundreds of independent bookshops who made profit, employed people and PAID their taxes.

Sadly my wife has a Kindle. Life is complicated.

[dave birch]

Interesting comments there, Paul.

I'll bet the same happens world wide.

We, here in Australia, have a problem with tax and the Internet, it's about sales under $1000 being GST (VAT) free, giving overseas based enterprises a 10% advantage to start with.

[Paul]

I'm sure it does Dave. The UK has just closed a tax loophole whereby mail order companies could ship product out of the Channel Islands into the UK without charging VAT. Many mail order companies took advantage if this until recently. Apparently there are enormous factories in Guernsey and Jersey producing anything you could wish for!!

The UK arm of Amazon is classed as a delivery organisation,selling nothing, which is how they get away with it. In the USA Amazon pays sales tax in only five states and is currently disputing a tax bill of £1 billion - so Steve is funding their activities as well!!!

[dave birch]

Seems like imposition of US tax laws on the rest of the world!

Not for me. Pay your taxes in the country of purchase.

The Americans can do what they want in the US (how many cities, towns are going under because they can't raise enough from rates to cover basic needs).

I prefer the way we have it here, so pay the local taxes.

[jim mk2]

BBC report Starbucks 'paid just £8.6m UK tax in 14 years'

http://www.bbc.co.uk/news/business-19967397

The national debate over the so-called 'benefits culture' now needs to move on to one of the principal causes of the hole in the public finances which is the huge tax avoidance undertaken by big corporations and wealthy individuals. It is gratifying to see government and the public is finally waking up to the problem.

[Paul]

So did consumers.

The issue is tax evasion not consumer spending though it is true we have a culture in the UK whereby we are not prepared to pay the true value of anything. Different discussion though

[Steve Moss]

The issue is tax evasion not consumer spending though it is true we have a culture in the UK whereby we are not prepared to pay the true value of anything. Different discussion though

Tax is an expense. Business will react to minimize that expense as it will all expenses. What you are describing in previous posts is a high tax UK business environment which prompts businesses to locate one or more aspects of its production elsewhere, such as Jersey, Luxembourg or Holland. There is nothing wrong with that.

It's time that the UK (and the USA) acknowledge that we're in a global market. If any one jurisdiction increases its taxes to a point that it will relocate all or part of its operations, it will. Which means that jurisdiction will not only have lost tax revenue (which may have been paid at a lesser, more competitive rate) but also jobs. There are no captive businesses.

Your jurisdiction could react by banning Amazon or Starbucks. Which merely means that consumers will have lost a potential good or service (the value of which can be debated). Limiting consumer choice won't do much for your quality of life.

Alternatively, the business could simply pay the higher tax. But like all expenses that tax will be an expense calculated into the price point. So the customer will not only pay sales tax, that same customer will pay his or her pro rata share of Starbucks tax.

It appears to me that some nations are hitting the point where they are killing the gooses that lay the golden eggs (business). If you over tax business (evil profiteers!) don't be surprised if they move elsewhere, taking both their jobs and their taxes with it.

On the transfer pricing, I'm not certain its an issue unless someone knows that Starbucks is overpaying?

[Paul]

Steve I understand all of this and it is hard to argue against. The real issue though is companies such as Starbucks and Amazon expect to locate in the UK, earn significant revenue and profits here but are unwilling to pay tax on those earnings. If the companies wish to avail themselves of our market, consumers and crucially infrastructure, which we are all paying for, those companies should contribute accordingly. I see no reason why American companies should drive up and down our highways and byways, earn significant profits and not contribute to the country.

Where I would disagree is tax being an expense. If I costed my products to include a contribution to our business taxes I would cease to be competitive.

[jim mk2]

If you over tax business (evil profiteers!) don't be surprised if they move elsewhere, taking both their jobs and their taxes with it.

Starbucks have paid just £8.6m UK tax in 14 years, which I don't see as "over-taxing."

I love it when the right wing spout their usual drivel about "the rich create jobs" " these people create our wealth" " these people pay the bulk of taxes." "The rich will leave if we tax them more". It's all rubbish.

The rich do not create jobs. The single greatest creator of jobs is consumer demand. Guess who are the biggest consumers? That's right, you and me. We create jobs. We drive the economy. When we don't spend, the economy contracts. The richest 1% control more wealth now than at any time in history. If job creation depended on how wealthy the rich are, then why haven't we got jobs coming out of our ears? Because trickle down economics is nonsense. In fact, every time the rich get richer, unemployment always goes up.

These people create wealth all right, but only for themselves. You'd have to be pretty stupid to think that the rich granting ever larger salaries and bonuses to themselves can be seen as wealth creation. What's worse, in the case of the banks, it's actually led to huge damage to the economy.

The biggest rates of growth in any economy occur when wages increase, living standards rise and ordinary people spend. For example, in the 1960's, when we had top tax rates of 97.5%, inequality narrowed, living standards rose, GDP grew at 3% and we had full employment. The rich are at their richest right now, yet we are in a recession. Letting the wealthiest get ever richer does nothing to boost the economy.

If we tax them more, they'll leave? Good riddance.

[Steve Moss]

Seems like imposition of US tax laws on the rest of the world!

Not for me. Pay your taxes in the country of purchase.

The Americans can do what they want in the US (how many cities, towns are going under because they can't raise enough from rates to cover basic needs).

I prefer the way we have it here, so pay the local taxes.

I have no problem with the UK doing things its way while the USA takes a different path.

By way of comparison roughly using Wikipedia stats, the UK has a population of 62 million and a GDP of $2.3 trillion (or $36,000 per person), with a budget of roughly 45% of GDP, and a human development index of 28th. By comparison, the USA has a population of 314 million, a GDP of $15 trillion (or $48,000 per person), with a budget of roughly 39% of GDP, and human development index of 4th.

All things considered the USA isn't doing horribly in comparison to the UK, though we need to get our debt under control.

And most cities and towns are going under for two reasons: 1) public employee unions and a benefits culture dominating the available budget; and, 2) an anti-business environment (likely an effort to finance point 1).

Where I would disagree is tax being an expense. If I costed my products to include a contribution to our business taxes I would cease to be competitive.

I agree that taxes aren't considered an expense in determining whether a profit is earned, though there are exceptions to this (in the USA, at least, real property and other taxes come off of receipts before calculating profit subject to income tax).

However, if you earn $2 (net) and you are taxed 50% you only have $1 in your pocket after all of your work. There comes a point that the cost plus risk vs. benefit results in a business shutting its doors. While not a tax situation, in my rural community an experienced and competent neurosurgeon who relocated from Chicago to our small dusty desert town in search of the quiet life has decided to close up shop as the reward is exceeded by the expenses and risks associated with his profession. As a societal matter, this is not a good thing. The bottom line (money in the pocket) matters.

Starbucks have paid just £8.6m UK tax in 14 years, which I don't see as "over-taxing."

. . .

If we tax them more, they'll leave? Good riddance.

Whether Starbucks paid too little in tax depends very much on the profits earned. Considering they have closed hundreds of stores over the last few years, there is a reasonable suspicion that their profits (i.e. the amount taxed) are not as high as we might assume. I qualify this opinion in that resort to "transfer pricing" may have understated Starbucks profits as a matter of theory, though there appears to be no proof of this.

And I'm sure the USA will gladly accept any business you decide to drive out of the UK, Jim.

[Salgado Is A Hero]

I'm sure it does Dave. The UK has just closed a tax loophole whereby mail order companies could ship product out of the Channel Islands into the UK without charging VAT. Many mail order companies took advantage if this until recently. Apparently there are enormous factories in Guernsey and Jersey producing anything you could wish for!!

And now over a thousand people have lost their jobs.....further exacerbating employment levels whilst immigration levels also rise.

[Stuart]

Steve I understand all of this and it is hard to argue against. The real issue though is companies such as Starbucks and Amazon expect to locate in the UK, earn significant revenue and profits here but are unwilling to pay tax on those earnings. If the companies wish to avail themselves of our market, consumers and crucially infrastructure, which we are all paying for, those companies should contribute accordingly. I see no reason why American companies should drive up and down our highways and byways, earn significant profits and not contribute to the country.

Where I would disagree is tax being an expense. If I costed my products to include a contribution to our business taxes I would cease to be competitive.

Not sure about the highways and byways argument. Surely their haulage vehicles - or whichever third party they use - pay road tax?

[Jeru tha Damaja]

Stuart, I'm pretty sure that Gist has the contract for Starbucks' logistics and they do pay road tax. It's kind of irrelevant though, since "road tax" is actually an emissions tax, the proceeds of which are not spent directly on construction and maintenance of the nation's roads.

Since the question has vaguely been asked whether Starbucks should be paying more tax, there is an article from the beginning of the year that says the UK branch posted a 10% increase in profits for the three months up to January 2012 with net profit of £243.4m.

However, the interesting thing for me is that they also plan to open 100 new stores over the next 5 years, creating 5,000 new jobs.

Now, they pay for their buildings and all the expenses associated with that. They pay NICs for their employees, their employees pay NICs and income tax. VAT is paid on their products. You then want to tax the company on its profits and levy yet another tax against the shareholders receiving dividends from those profits. Surely you can see why companies look for creative accountants when the government effectively taxes the same pound a dozen different ways?

[Steve Moss]

Now, they pay for their buildings and all the expenses associated with that. They pay NICs for their employees, their employees pay NICs and income tax. VAT is paid on their products. You then want to tax the company on its profits and levy yet another tax against the shareholders receiving dividends from those profits. Surely you can see why companies look for creative accountants when the government effectively taxes the same pound a dozen different ways?

Jeru, we agree on something!

Welcome to the Republican Party.