When IT Meets Politics

Mar 15 2016   1:33PM GMT

The Chancellor’s route to balancing the Budget?

Philip Virgo Profile: Philip Virgo

Tags:
Amazon
budget
Crickhowell
European Union
Faceboo
Google
Uber
UBS
United Kingdom

The precedents set by judgement of the Supreme Court which voided the fictions used by Deutsche Bank and UBS to avoid tax on Bankers bonuses may be rather more profound than appears to date, We may find out tomorrow. The judgement appears to facilitate the enforcement of the Chancellor’s 25% “Diverted Profits Tax“, announced last. The combination provides context for the “radical accounting simplification” planned by Facebook and its decision to route its UK sales through its UK subsidiary and reduce its profits by paying staff taxable bonuses. The recent revelations about how senior IT industry staff (including some Civil Servants) are currently remunerated explain why Matt Brittin of Google did not know how much he was paid when asked by the Public Accounts Committee.

Many corporations, from Amazon to Uber may decide to resist tax decisions based on that judgement. But will they, like the “little men” be forced to pay first and appeal afterwards. If not, the Chancellor’s hope of becoming PM, already diminishing, may well vanish – unless he can pull some remarkable rabbits out of the hat tomorrow.  Making the Amazon, Google, Starbucks and Uber pay tax has serious voter appeal – except among the under 25s who are least likely to vote. Meanwhile the Fair Tax Town movement inspired by Crickhowell (the town that took on the taxman) is gaining momentum.      

Tomorrow we may learn how much has been collected from the “Diverted Profits Tax” to date. It is probably embarrassingly little – which may help explain the 4 billion gap which the Chancellor supposedly has to fill. Hopefully this judgement will open the floodgates and help bring about tax parity between the on-line and off-line worlds as well as between multi-national indigenous players. If so, we may learn how much of the benefits of doing business on-line are for real and how many are “merely” tax and regulation avoidance, hidden under layers of hype and US legal jargon..

The is also the question of whether effective tax collection is easier inside the EU or outside: bearing in mind that London is a tax haven for those outside the UK while the Crown Dependencies are tax havens for both those inside and out. Until recently Chancellor could afford to be two-faced because the UK’s “invisible earnings” (including from London as tax haven for other nations tax-avoiders) helped balance our books. This ceased to be the case after 1997 for a variety of reasons (some down to Gordon Brown, others not).

Perhaps the time has come to give the Crown Dependencies a choice of levying UK Corporation tax (to pay for the Royal Navy and the UK’s global cyber warfare and law enforcement capabilities) or facing a fiscal blockade. That might seem “a little drastic” but may well have the support of other nations who see similar tax avoidance as the on-line multinationals route their IPR and other revenues through the Crown Dependencies (and/or  the Dutch Antilles) as much as they do through Malta, Luxembourg, the Irish Republic and Cyprus. perhaps the G20 has already agreed such a deal and that is why the Chancellor rejects any lesser EU arrangements.
 

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