What the PAC wants to do
Dec. 3rd, 2012 03:40 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
king_pellinorThere seem to be two main issues that the PAC is complaining about.
The Starbucks issue is that it's a big business but isn't very profitable even though it tells people things are going well. So what the PAC wants to do is scrutinise the amounts Starbucks pays to related parties to make sure they're not inflated to avoid UK tax.
So we need to set up an official arm of the UK Government with powers to examine the accounts and tax returns of large companies to make sure they don't do uncommercial things. Oh, wait, that's exactly what HMRC is meant to do, and in fact has done - as evidenced by the reducting in royalties from 6% to 4.7%. So, er, nothing for the PAC to look at here.
The Amazon/Google issue is different: the issue for them is that they're located outside the UK and selling into it, which is made a lot easier by the web. So when someone in the UK buys from them, the profit on that sale is taxed outside the UK. So what the PAC wants to do is make sure that it's taxed in the UK.
Only... if you apply that across the board, then every company selling across the web will need to carefully keep track of where its customers are, and file tax returns in every single country they come from. Bit of a bugger for businesses, especially small ones - you either have an impossible administrative job, or you have to refuse sales, or probably both. This was considered in the VAT context a few years ago, and the EU decided that the only way to make things work was to have the VAT chargeable where the supplier is, as otherwise there'd be no sales to charge VAT on.
Also, for every person on the outside selling in, you have people on the inside selling out. So doing this would strip a lot of profits out of the UK tax net. Ignoring balance of payments issues, it would have no effect on tax revenues - except for the fact it now makes it much harder to sell anything, so the economy goes downhill and taxes fall.
The other thing might be to look at the definition of "Permanent establishment". At the moment marketing and distribution are regarded as ancillary to the main business of selling, so if you have an overseas company with a warehouse in the UK then it doens't necessarily have a taxable presence here. There may be some scope in looking harder at that area to see if maybe some marketing/distribution operations are substantial enough to count as establishments. At that point, the UK gets a cut. Again, this is something you need to look at both ways round, and would be a major international discussion point, not something you can do unilaterally.
So what the PAC wants to do is stop meddling in what it doesn't understand. Oh, and maybe think about funding HMRC properly so they can get on with doing the job that they're actually surprisingly good at (for all I say about them).
The Starbucks issue is that it's a big business but isn't very profitable even though it tells people things are going well. So what the PAC wants to do is scrutinise the amounts Starbucks pays to related parties to make sure they're not inflated to avoid UK tax.
So we need to set up an official arm of the UK Government with powers to examine the accounts and tax returns of large companies to make sure they don't do uncommercial things. Oh, wait, that's exactly what HMRC is meant to do, and in fact has done - as evidenced by the reducting in royalties from 6% to 4.7%. So, er, nothing for the PAC to look at here.
The Amazon/Google issue is different: the issue for them is that they're located outside the UK and selling into it, which is made a lot easier by the web. So when someone in the UK buys from them, the profit on that sale is taxed outside the UK. So what the PAC wants to do is make sure that it's taxed in the UK.
Only... if you apply that across the board, then every company selling across the web will need to carefully keep track of where its customers are, and file tax returns in every single country they come from. Bit of a bugger for businesses, especially small ones - you either have an impossible administrative job, or you have to refuse sales, or probably both. This was considered in the VAT context a few years ago, and the EU decided that the only way to make things work was to have the VAT chargeable where the supplier is, as otherwise there'd be no sales to charge VAT on.
Also, for every person on the outside selling in, you have people on the inside selling out. So doing this would strip a lot of profits out of the UK tax net. Ignoring balance of payments issues, it would have no effect on tax revenues - except for the fact it now makes it much harder to sell anything, so the economy goes downhill and taxes fall.
The other thing might be to look at the definition of "Permanent establishment". At the moment marketing and distribution are regarded as ancillary to the main business of selling, so if you have an overseas company with a warehouse in the UK then it doens't necessarily have a taxable presence here. There may be some scope in looking harder at that area to see if maybe some marketing/distribution operations are substantial enough to count as establishments. At that point, the UK gets a cut. Again, this is something you need to look at both ways round, and would be a major international discussion point, not something you can do unilaterally.
So what the PAC wants to do is stop meddling in what it doesn't understand. Oh, and maybe think about funding HMRC properly so they can get on with doing the job that they're actually surprisingly good at (for all I say about them).
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no subject
Date: 2012-12-04 10:07 am (UTC)I can't quite see what benefit there would be to businesses in the UK all having to keep a careful record of what they'd spent at Google, and then claiming it all back, rather than the current arrangement, which is that you give Google your VAT number and they sort it out?
You could make it easier for UK companies to develop products that could compete with Google, but frankly the way internet regulation and policing in the UK is going, that seems unlikely : if I were Google I don't think I'd want to be based here either.
no subject
Date: 2012-12-04 02:15 pm (UTC)With consumers, you pay VAT based on where the supplier is.
With business customers, which is pretty much defined as "people with a VAT number" (which is why Google ask for one), it's where the customer is based. What should happen is Google will invoice the business without charging VAT, and then the customer does a "reverse charge" and includes the VAT they would have paid on their VAT return at their local rate.
The trick is that the customer is then entitled to reclaim the VAT on the same VAT return, so for most businesses there's no net VAT impact. It's only if you're making exempt supplies that you have a problem (financial services and healthcare, mostly, but property and some other things are exempt too).
Effectively you have the customer acting as the supplier's VAT agent and doing all the VAT accounting for them. The idea isn't to make life easier for the customer, it's to make it easier for the supplier: as the customer has to do their own VAT then they should know how their VAT system works, so it's (in theory) not a problem for them, but the supplier doesn't need to worry about learning foreign rules.
It is pretty much "businesses in the UK all having to keep a careful record of what they'd spent at Google, and then claiming it all back", to be honest, though I know some get it wrong. In theory, if you code your purchases properly in the accounts system (tax code T8 in Sage, for example, unless you've fiddled with it) then the VAT should all be done properly without you needing to worry.