That'sGreat
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I have no clue where to post this, so I guess it kind of comes under Uk politics in relation to taxing companies. What I want to ask is:if a company makes, say 4 million profit before tax, can they invest all of that money into a company into the Canary Islands for example, where there is no tax, In order to avoid paying tax? Or do the government take the money as soon as you've paid the workforce.
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ckfeister
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(Original post by That'sGreat)
I have no clue where to post this, so I guess it kind of comes under Uk politics in relation to taxing companies. What I want to ask is:if a company makes, say 4 million profit before tax, can they invest all of that money into a company into the Canary Islands for example, where there is no tax, In order to avoid paying tax? Or do the government take the money as soon as you've paid the workforce.
Corruption at its finest. We're no different than Russia, China etc...
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Rakas21
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(Original post by That'sGreat)
I have no clue where to post this, so I guess it kind of comes under Uk politics in relation to taxing companies. What I want to ask is:if a company makes, say 4 million profit before tax, can they invest all of that money into a company into the Canary Islands for example, where there is no tax, In order to avoid paying tax? Or do the government take the money as soon as you've paid the workforce.
What happens is the Cayman firm will borrow money from its UK subsidiary so that the UK firm will not make a theoretical profit.
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Reality Check
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It's not quite as simple as that. Companies can have extremely complicated structures with subsidiary companies and licensing arrangements. Also, Corporation tax operates on profits and not where the income is earnt. So profits can be 'booked' in a country with a favourable tax regime (Apple books profits in Eire, for example). Companies can also pass losses between subsidiary companies, charge licensing fees to create losses/reduce profits and a whole host of other aggressive tax avoidance strategies or 'tax planning'.
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username1799249
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(Original post by ckfeister)
Corruption at its finest. We're no different than Russia, China etc...
Not really. Corruption is where you hand a series of brown envelopes to various insider officials in return for favourable treatment.

What we have is an exceedingly complex tax system that experienced accountants play like a Stradivarius violin. In other words, we make the rules and companies play by them. If we want the taxes, we need to set the right rules. That said it seems to me that corporation tax in this day and age of multinational online businesses is a rather blunt instrument and perhaps there are better ways to get the money?
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username878267
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(Original post by ByEeek)
Not really. Corruption is where you hand a series of brown envelopes to various insider officials in return for favourable treatment.

What we have is an exceedingly complex tax system that experienced accountants play like a Stradivarius violin. In other words, we make the rules and companies play by them. If we want the taxes, we need to set the right rules. That said it seems to me that corporation tax in this day and age of multinational online businesses is a rather blunt instrument and perhaps there are better ways to get the money?
Should tax revenues, not profits.
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username2228735
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(Original post by Bornblue)
Should tax revenues, not profits.
This would stifle any incentive to produce.
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username878267
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(Original post by Aceadria)
This would stifle any incentive to produce.
No it wouldn't.
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username2228735
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(Original post by Bornblue)
No it wouldn't.
Example case:

Corporation makes £1000. If you set a tax rate of 35% on it, but costs are equal to 80%, the firm will make a loss. That means start-ups will be spending their money on paying the government rather than growing. This will also mean that more established organisations will aim to reduce cost (public companies tend to do that by firing people).
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Jammy Duel
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(Original post by Bornblue)
Should tax revenues, not profits.
You never were particularly economically literate, the biggest problem is different net profit margins in different sectors, some, such as retail, run on very small margins, they trade massive volumes with a tiny margin on each one. Meanwhile the service sector tends to run high margin, for instance accounting and bookkeeping forms have margins pushing 20%.

Clothing retail is looking at 8%. Supermarkets are down at about 1%.

Now let us suppose for argument sake that the national average pre tax margin in 10%, or in other words average corp tax is 2% of revenues. Now we look at the comparison.

That accounting firm goes from a 16% post tax margin to an 18% post tax profit and are laughing. That clothing retail firm goes from 6.4% to 6% and mumbles a little. That supermarket goes from 1% to (1%) and has to put up prices and cut staff. Now add on top of this that many of the biggest employers are low margin and you start seeing the problem. Harder to dodge the tax, but then reactions to poor results become much harsher and low margin industries have to radically change, the effect being higher prices and lower employment.

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username1799249
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(Original post by Bornblue)
Should tax revenues, not profits.
The government already to that. It is called VAT.
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Jammy Duel
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(Original post by ByEeek)
The government already to that. It is called VAT.
Not necessarily and it is an incredibly variable tax on each individual business, bar of course the initial business in the chain of production and sale
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username1799249
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(Original post by Jammy Duel)
Not necessarily and it is an incredibly variable tax on each individual business, bar of course the initial business in the chain of production and sale
Agreed. But you could impose something like it on all businesses. Wouldn't work mind.
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Jammy Duel
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(Original post by ByEeek)
Agreed. But you could impose something like it on all businesses. Wouldn't work mind.
It is imposed on all businesses, but it is a flat rate on value added, not revenues, if there is no value added there is no tax. The mine, for instance, effectively pays 20% on revenues and then 20% on profits because the revenue is equal to the value added, although there are probably ways around that too.

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Rakas21
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Cutting down tax avoidance can simply be done by setting transfer pricing guidelines and cutting the number of small exemptions that are allowed. Additionally we should leave corporation tax at 20% and move to abolish business rates (an actual cost of doing business in the UK) and VAT (a tax on a component of aggregate demand).
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