One of these is big business being targeted for tax avoidance.
Sir Phillip Green in his evidence to Parliament, hinted, but did not name many competitors, whom he suggested, were running aggressive tax avoidance schemes.
I agree, here is a scheme, many similar are run by many in fashion:
- A Fashion brand has stores in the UK operating under a UK company.
- The stores have no stock on their books.
- Stock is shipped into the store, but it is owned by an offshore wholesaler, say in Luxembourg.
- When the UK store sells an item, say for £10, an invoice is raised from Luxembourg Wholesaler to the UK company for £10.
- The UK company never makes a profit on sales, has costs and therefore always makes a loss and never pays any corporation tax in the UK.
- The Wholesaler in Luxembourg, makes the profit and pays corporation tax at a lower rate than they would do in the UK.
When laid out like this, how can you can come up with ways to legislate against this?
Can you insist that companies make a profit, well clearly not lots of businesses don't make a profit for a long time or ever. How can you legislate between incompetence and aggressive tax avoidance? Well clearly that is much harder if both companies are not under the same rules or information sharing schemes.
Having extra control over the retailer in this scenario does not help solve the problem. Sovereignty only extends to the UK, company tax avoidance is a global problem.
