How the 'grassroots' movement has got it totally wrong
- UK Uncut’s campaign against companies that are supposedly not paying sufficient tax is wholly misconceived.
- UK Uncut has attacked Vodafone for not paying £6 billion of tax on the profits made by its German operations. However, it is not – and never can be – a principle of tax law that a company should pay both UK tax and German tax on the activities of the German parts of the business. At issue is a much smaller amount of tax for which the company might be liable representing the difference between the UK and German tax that is due on profits made in Germany. This is a hotly debated area of tax law and European law and HMRC and the company have reached a compromise.
- No developed country could develop a corporate tax system that taxed profits twice in the way UK Uncut are suggesting should happen in the case of Vodafone.
- UK Uncut’s attack on Boots is also unjustified. This is a Swiss-based company and should pay UK corporation tax on its UK profits. However, the company had financed its operations by borrowing and therefore made little profit on its UK operations – instead it paid interest to those from whom the company had borrowed money. Though interest is not taxed in the same way as profits, those who have lent money to Boots will pay tax on the interest they receive.
- No developed country has a tax system that taxes interest in the same way as profits. Interest is a cost of doing business and it should be taxed according to the recipients’ tax status and not according to the tax status of the company.
- It is alleged by UK Uncut that Philip Green avoided tax by paying a dividend from a company he controls to his wife who, in turn, does not pay UK tax. This allegation is wrong in three respects. His wife owns Arcadia through a holding company that she also owns and her husband manages the company. Secondly, Arcadia pays corporation tax but any dividends must be paid to the owner – Tina Green. It is only further, higher rate, tax that is not being paid on the dividends. Thirdly, the UK tax system now taxes husbands and wives separately. The implications of the suggestion that Philip Green’s tax status should determine the tax that Tina Green pays would be to send our tax system back to the dark ages.
- Barclays – UK Uncut’s fourth target – has also applied a completely reasonable principle of tax law. Barclays reduced its corporation tax bill in the last tax year by offsetting losses made in previous years. If companies are not allowed to do this, those companies involved in risky businesses where profits fluctuate would pay much more tax than companies with stable profit streams – even if they made the same amount of cumulative profits. This would be a particular problem for “start-up” firms.
- In general high rates of corporation tax are very damaging. In a world of mobile capital, high rates of corporation tax reduce the amount of capital employed in a country and therefore reduce the productivity and wages of labour. Research suggests that the cost to workers of this effect in the UK is greater than the total corporation tax take.
- In addition, corporation tax is not paid by the company but by the owners of the company. Such owners are, in general, prospective pensioners, beneficiaries of savings policies and so on and have had their returns severely curtailed by other economic events and government policies.
- Overall, there is strong case for abolishing corporation tax or, at least, reducing its rate to the basic rate of income tax. UK Uncut’s proposals simply cannot be implemented without huge injustices and a flight of capital from the UK.
2011, Current Controversies 32