My point, apparently not made clearly enough, was that ethics is not fact.... it differs from one individual to another and one day to the next. You can pretty much use it to support any argument you like..... perhaps that wealth should be distributed evenly across everybody in the uk/world so that there is no "rich" and no "poor".... and not to mention that it's "unethical" that people in the Uk have savings accounts whilst people starve to death in Africa.
While laws may be based on ethics, tax payment is not... it's necessarily based on the law. You can argue that the UK tax laws are unethical in not giving the right result, but you cannot argue that a company abiding by the tax law is unethical in doing so.
In an above post you refer to various spokespeople for Starbucks as having amnesia, having commented on both UK profits and losses for the same years. The problem here is that you don't know what you're talking about, whereas they do.
Within an international group, you undertake a financial consolidation to make the group accounts, in which intercompany profits and losses are eliminated. When investor annoucements are made which refer to UK profits, they are talking about profits based on a consolidated set of accounts - with intercompany costs extracted. That is not the same as the profits for the UK legal entity, which includes intercompany costs and therefore results in a lower profit - or in this case, a loss.
It wouldn't make any sense to talk to investors about profits and losses on a non-consolidated basis, as they are trying to explain the various elements of the consolidated group accounts.
I think that ethically, as a (presumably) successful accountant, you should pay more tax than the standard rate of income tax. I feel that it is only ethical for you to make a bigger, voluntary contribution than the legal one, since you understand the very issues faced by the country. What do you think about that?
Yes of course, but that is where conventional transfer pricing rules fall apart - an independent business would not pay all its profits to Starbucks to use their brand. But it WOULD make sense for Starbucks to operate at a loss in the UK, if it generated significant royalty income for use of its brand. In itself that it not immoral. It is only immoral if they cannot justify the royalty rate with the correct supporting documentation - something which no MP seems to care about.
The anger at multinationals so-called "avoidance" is akin to some sort of witch hunt. It shows a complete lack of understanding of the corporate tax rules, and how they operate in practice.
Starbucks is a brand.. it's not exceptional coffee. In my local town in the South East, all the independent coffee shops have closed and Nero, Starbucks and Costa have taken over. It's in people's nature to be drawn to the names they recognise. That brand represents intellectual property which was developed outside the UK and there is actually a reasonable basis for the royalties paid by the UK operations (shock horror). Think about it this way... what royalty would Starbucks charge a third party for exclusive use of the brand in a particular country? Answer - a hell of a lot. Would that enterprise actually be profitable after paying such a large licence fee? Possibly not.
Tax is levied on people, not companies. Increasing corporation tax through some kind of turnover based tax, or something other than profits.... that additional tax cost will be borne by the shareholders, the customers or the suppliers. And in the case of Starbucks and Amazon in the UK, you can bet it will come through to customers. The general public who are arguing for a boycott of these brands are the very people who will be hurt by "fixing" the non-existent problem.
I don't think it would be very ethical for McLaren to be required to pay tax on £32 million of income which they never received. The basis of all tax should be that the cash has been generated in order to pay the tax....
I am amazed that AWeb members can discuss the tax deductibility of this fine without considering whether it was incurred "wholly and exclusively". Surely that is the crux of the matter?
If anyone here takes the view that the court's decision was incorrect, then they presumably view that the cost was not wholly & exclusively incurred for the purposes of the trade. In that case, can I ask what exactly was the purpose of the fine? Especially bearing in mind that if McLaren refused to pay the fine, they would be in breach of contract with the FIA and no doubt thrown out of Formula 1.
I would actually take the point further and say that statutory fines are also incurred wholly & exclusively incurred for the purposes of a trade, and by law should be deductible. The court decision from 1920 which gives authority to non-deductibility of statutory fines (CIR v Alexander von Glehn Ltd) is the incorrect court decision here - a very sloppy decision which caused confusion in the first place. If the UK Government intended for fines to be non-deductible, then they should have legislated for it.
I think it's great what the Times is doing. It's putting HMRC to shame - why couldn't they have done these investigations themselves if they were really serious about tax avoidance..
Sorry but this is nonsense. HMRC are investigating the schemes and they publicise the sort of thing that they most dislike on the Spotlights page of their website. Have you seen it?
Sadly it can take years before the final outcome of challenges to tax schemes are finalised and publicised.
Mark
A good observation, but you are commenting on something that happened a week ago, apparently without having followed the rest of the story in the meantime......
My answers
My point, apparently not made clearly enough, was that ethics is not fact.... it differs from one individual to another and one day to the next. You can pretty much use it to support any argument you like..... perhaps that wealth should be distributed evenly across everybody in the uk/world so that there is no "rich" and no "poor".... and not to mention that it's "unethical" that people in the Uk have savings accounts whilst people starve to death in Africa.
While laws may be based on ethics, tax payment is not... it's necessarily based on the law. You can argue that the UK tax laws are unethical in not giving the right result, but you cannot argue that a company abiding by the tax law is unethical in doing so.
@mr. mischief
It's actually you who is missing the point.
In an above post you refer to various spokespeople for Starbucks as having amnesia, having commented on both UK profits and losses for the same years. The problem here is that you don't know what you're talking about, whereas they do.
Within an international group, you undertake a financial consolidation to make the group accounts, in which intercompany profits and losses are eliminated. When investor annoucements are made which refer to UK profits, they are talking about profits based on a consolidated set of accounts - with intercompany costs extracted. That is not the same as the profits for the UK legal entity, which includes intercompany costs and therefore results in a lower profit - or in this case, a loss.
It wouldn't make any sense to talk to investors about profits and losses on a non-consolidated basis, as they are trying to explain the various elements of the consolidated group accounts.
@Paul
I think that ethically, as a (presumably) successful accountant, you should pay more tax than the standard rate of income tax. I feel that it is only ethical for you to make a bigger, voluntary contribution than the legal one, since you understand the very issues faced by the country. What do you think about that?
@vstrad
Great comment, well said....
@justsotax
Yes of course, but that is where conventional transfer pricing rules fall apart - an independent business would not pay all its profits to Starbucks to use their brand. But it WOULD make sense for Starbucks to operate at a loss in the UK, if it generated significant royalty income for use of its brand. In itself that it not immoral. It is only immoral if they cannot justify the royalty rate with the correct supporting documentation - something which no MP seems to care about.
@justsotax
I assume the Starbucks brand was developed in the US, and sold to the Netherlands. It's up to the US to ensure the sale was taxed at market value...
Corporate witch hunt
The anger at multinationals so-called "avoidance" is akin to some sort of witch hunt. It shows a complete lack of understanding of the corporate tax rules, and how they operate in practice.
Starbucks is a brand.. it's not exceptional coffee. In my local town in the South East, all the independent coffee shops have closed and Nero, Starbucks and Costa have taken over. It's in people's nature to be drawn to the names they recognise. That brand represents intellectual property which was developed outside the UK and there is actually a reasonable basis for the royalties paid by the UK operations (shock horror). Think about it this way... what royalty would Starbucks charge a third party for exclusive use of the brand in a particular country? Answer - a hell of a lot. Would that enterprise actually be profitable after paying such a large licence fee? Possibly not.
Tax is levied on people, not companies. Increasing corporation tax through some kind of turnover based tax, or something other than profits.... that additional tax cost will be borne by the shareholders, the customers or the suppliers. And in the case of Starbucks and Amazon in the UK, you can bet it will come through to customers. The general public who are arguing for a boycott of these brands are the very people who will be hurt by "fixing" the non-existent problem.
Ethics
I don't think it would be very ethical for McLaren to be required to pay tax on £32 million of income which they never received. The basis of all tax should be that the cash has been generated in order to pay the tax....
Late to the party but...
I am amazed that AWeb members can discuss the tax deductibility of this fine without considering whether it was incurred "wholly and exclusively". Surely that is the crux of the matter?
If anyone here takes the view that the court's decision was incorrect, then they presumably view that the cost was not wholly & exclusively incurred for the purposes of the trade. In that case, can I ask what exactly was the purpose of the fine? Especially bearing in mind that if McLaren refused to pay the fine, they would be in breach of contract with the FIA and no doubt thrown out of Formula 1.
I would actually take the point further and say that statutory fines are also incurred wholly & exclusively incurred for the purposes of a trade, and by law should be deductible. The court decision from 1920 which gives authority to non-deductibility of statutory fines (CIR v Alexander von Glehn Ltd) is the incorrect court decision here - a very sloppy decision which caused confusion in the first place. If the UK Government intended for fines to be non-deductible, then they should have legislated for it.
Hmm
A good observation, but you are commenting on something that happened a week ago, apparently without having followed the rest of the story in the meantime......