Tax Needn’t Be Taxing

Fresh on the heels of the Government’s adverse publicity surrounding the amount of UK tax (or lack of it) that some of the world’s juggernauts (Apple, Starbucks, Google, Ebay, Amazon, etc.) have / haven’t been paying over recent years, the announcement of Ebay’s 2016 results have been eagerly anticipated……especially given the Government promises on cracking down on tax avoidance.

 

The results are in……

 

Ebay’s UK operations generated total revenues of £1 billion (and for dramatic effect……£1,000,000,000).

 

UK Corporation Tax paid……£1.6 million, which is essentially 0.16% of turnover.

 

Which begs the question, how can £1 billion of revenue generate so little taxable income for the UK coffers?

 

Well, it’s all quite simple and really clever at the same time.

 

Step 1: Choose your head office where tax isn’t really an issue (Switzerland in this case) and call it Ebay International.

 

Step 2: Use your UK branch (Ebay UK) as an ‘advertising and marketing agency’ that creates the £1 billion of sales in the UK on behalf of the Switzerland office. This then means that the £1 billion of sales created in the UK was really for your Switzerland office and is then taxed (or not in this case) outside of the UK.

 

Step 3: Get Ebay UK to invoice Switzerland for ‘advertising and marketing’ services and then only pay UK Corporation Tax on this far reduced amount rather than the £1 billion of sales.  

 

As I said, simple and really clever……and that is just one company.

 

What is not quite so simple is the action that our Government should take. If they come down too hard on these juggernaut companies, they will simply move operations outside of the UK and that will mean a loss of jobs and the economic benefit that they bring. If they continue to be ‘accommodating’, then we miss out on valuable tax revenues. Damned if they do, damned if they don’t.

 

At a time when the UK is going out on an economic limb post Brexit, I fully expect the Government to continue to be very accommodating. Just don’t expect them to admit it publicly.