Thursday, December 27, 2012

Surprise, big companies used 'enhanced relationship' to minimize taxes

A Reuters article describes how since the UK tax collectors adopted a policy of 'enhanced relationship' taxes from large corporations have fallen at the same time profits at these corporations have increased.

This is likely to be a coincidence as companies and their accountants have become far more aggressive in booking taxable profits in low tax countries.

However, it does highlight how companies have limited their focus on doing well by all their stakeholders to only doing well by one group of stakeholders:  management/investors.

In the not so distant past, management and Boards of Directors use to include the impact of their decisions on stakeholders like the countries they did business in.  It was thought that doing well by the broader set of stakeholders contributed to doing well by the company over the long run.

After all, it was shown by Henry Ford that it is good for business to pay your workers enough so they can buy the company's product.

Big companies in Britain now pay less tax than they did 12 years ago despite a big jump in profitability, a Reuters analysis of official data shows. Tax campaigners say the trend is the clearest signal yet that tax avoidance has blossomed under a more business-friendly strategy at the UK tax authority Her Majesty's Revenue and Customs (HMRC). 
Large companies' payments of corporation tax - the UK equivalent of corporate income tax - totalled 21 billion pounds ($34 billion) in 2011/12, HMRC data shows. That was down five billion pounds or 21 percent since 2000/01 when the government, then controlled by the Labour Party, took the first steps towards a more collaborative approach to big business. 
At the same time, the gross operating surplus for all companies in the UK - a widely watched measure of companies' profitability compiled by the Office of National Statistics - has risen 65 percent, to 329 billion pounds. The economy has grown by 55 percent over the same period, and receipts of both personal income tax and small companies' income tax are higher....

John Christensen of Tax Justice Network, a tax campaigning group, said the figures show successive governments' attempts to create a more business-friendly administration - which includes a policy known as "enhanced relationship" based on mutual trust - have encouraged companies to use such tactics....

Prem Sikka, a professor of accounting at Essex University who has written extensively about tax avoidance, said that even allowing for the tax cut, the figures were "paradoxical". 
"How are they managing to reconcile higher profits with lower taxes?" he said. "It can't be done ... unless they are booking these profits somewhere else." Companies reporting for tax purposes are increasingly diverting UK profits to lower-tax jurisdictions, he said.

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