On tax and Tesco

I don’t know the detailed substance of the Tesco/British Land sale and leasebank transaction that the Guardian is exposing with glee as a sign of Great Evilness. But I do know some basic things about UK company and tax law, which suggest that the claim that Tesco will be able to avoid paying non-trivial amounts of tax on the profit from the deals is simply nonsense.

If you are a company domiciled in the UK, you have to pay tax at corporation tax rate on all repatriated profits (i.e. all dividends paid to the parent company by foreign subsidiaries). The only way in which you can get the profits from transactions made abroad into the hands of your shareholders is by repatriating the money to the parent company. At which point, the repatriated money is considered to be taxable profit by the Inland Revenue, and hence you have to pay corporation tax on it.

So if Tesco, or anyone else, were to set up a subsidiary in the Cayman Islands and make a stupendous amount of money tax-free, then while Richard Murphy would doubtless be sent into a state of apoplexy, it wouldn’t make a blind bit of difference to the money received by the UK government – Tesco’s shareholders can’t see any of the money (and the payment of dividends to shareholders is the whole point of a plc) until HMRC has taken its cut.

Don’t get me wrong – there are plenty of ways of using different international tax regimes to avoid paying various sorts of tax. If you’re a company based somewhere with lower corporation tax than the UK, you’ve got an incentive to keep your profits here lower than they really are – crudely, by ensuring your UK subsidiary pays higher prices than it should for goods it buys from other group companies [*]. Some once-British plcs have avoided paying UK tax on profits earned abroad by moving their domiciles from the UK to tax havens. And if you own a private company, you can easily pay random amounts of money from the company to blind trusts in the Caymans that you happen to control, to keep your UK profit and hence tax liability at zero [*].

But with very few exceptions, any action abroad which makes a UK-domiciled plc more profitable will, in the long term, generate tax revenues for the UK government at the standard corporation tax rate. And amusingly, that includes avoiding tax that would otherwise be incurred in higher-taxed foreign countries… [**]

[*] literally doing the starred activities in the way that they’re expressed above is illegal, but there are plenty of ways of achieving a similar result.

[**] in most cases profit isn’t double-taxed, so profit remitted from a country where 10% corporation tax has been paid to a country where the corporation tax rate is 30% will be taxed at 20% by the home country. But you don’t get a refund on profit remitted from a country where 40% corporation tax has been paid, so it’s in the UK taxpayer’s interest for British firms to minimise the tax they pay in such places…

Plastic bags are great – don’t ban them

It’s generally a good rule of thumb to oppose anything that’s favoured by the Daily Mail, assuming you have the slightest interest in economics or liberty, even if it doesn’t obviously sound like a bad idea. Sunny at Liberal Conspiracy would’ve done well to follow the rule:

In one stroke the Daily Mail has put [banning plastic supermarket bags] back on the political agenda and for that it must be applauded. The question is, will politicians heed?

Why is Sunny wrong? Well, plastic supermarket bags, while they make for oh-so-sad photostories of suffering seagulls, cause next to no net environmental damage. The government-funded Waste Resources Action Programme has said that because they are generally re-used as rubbish/storage bags, and because they are less environmentally costly to make than paper bags, they are the greenest current alternative.

It gets worse. Plastic bags are of the most use to people who’re shopping on foot or by public transport; if you’re going by car you can keep your shopping in boxes, or keep a selection of Bags For Life in your boot.

But if your shopping is done as part of a public transport commute [work -> shop -> home], which is the least environmentally damaging way to do it, then you’ve got a problem if plastic bags are banned: paper bags aren’t much use for holding things for more than the distance from checkout to car, which is why they’re popular in America, and carrying a Bag For Life wherever you go on the off-chance you might want to do some shopping at some point is hardly practical.

If you want to impose a tax on shopping that helps the environment, then tax supermarkets £5 for every car that parks in their car parks – giving them the choice of whether or not to pass it on to the consumer, of course. If you want to drive people off public transport and into their cars, while also increasing emissions associated with bag production (but saving a couple of cute animals – so that makes it all worthwhile), then support the plastic bag tax…

Me fail English? That’s unpossible

Apparently, 40% of 14-year-old boys perform below the level expected for their age group in national tests, and this is a Terrible Thing.

In other equally shocking news, which also comes as a devastating indictment of the government’s failed education policies [etc etc ad nauseam], nearly 50% of people are of below-average intelligence.

The problem is you, not the sandwiches

Sorry, has this man actually ever been to London or New York?

At present we are offered a ‘choice’ between an oligopoly of three or four chains, all spending so much money on advertising and formulaic minimalist interiors, that they haven’t got enough left over to spend on a filling, so have to make up for this with mayonnaise. The main alternatives are those italian sandwich bars, which are scarcely any more appetising.

Yet if real, vigorous competition were to arrive – a new cafe selling better food, for a decent price – would anyone notice? If it was in the toytown world of Borough Market, maybe, but elsewhere people would be either too distracted to spot it or then too busy to remember it. The problem in such situations, as the left liked to complain about markets, is inadequate information and rationality. Whereas the discerning New Yorker would discover such a place, tell their friends, and carry on eating there until an even better option had arisen, the Londoner dolefully heads off to Pret for another ‘Bacon Mayo Supermayo’.

I mean, seriously. London’s Italian cafés are pretty good; our chains aren’t at all bad (Eat, Leon and Pret are better than most of the food, chain or non-chain, that gets served anywhere, even if you eat the no-mayo sandwiches, which is a lot of them); and most of New York’s delis are absolutely bloody awful…

Is there a word, beyond ‘lying’, for this kind of claim – that a sandwich served by a company is inherently worse than a sandwich served by a worker, that a small grocery shop provides a better range and better service than a supermarket, that Fawlty Towers is better than a Malmaison, and so on? It’s analogous to the pastoralist belief that 12 hours a day of back-breaking manual labour on a starvation diet followed by death at 40 is better than an oh so unnatural modern lifestyle – and very nearly as silly.

Update: although I stand by my views on London sandwiches in general, the tuna melt I had this lunchtime from Bagel Factory is one of the most inedible things I’ve ever been served – I had to throw it away after a single bite. And I’ve happily eaten chicken feet and fish eyes…

SPV of the week

[Sorry, it's a forward so I can't link the original...]

“Munich Re has launched a bond programme under which $1.5bn in extreme mortality risk will be transferred to the capital markets…. Munich Re said that the programme would protect it against an exceptional rise in mortality after a major pandemic or similar event in the US, Canada, England & Wales, and Germany.”

I’m glad payouts are triggered by Germany as well. Still, it’s going to piss the hell out of the insurees if the bioterrorists go for Bermuda, Scotland, NI and the Netherlands…

Northern Rock again: why Granite isn’t that hard

If the Northern Rock debacle has done nothing else, it’s certainly given a lot of people a great opportunity to rant about things they don’t understand. The latest example is Granite, the name used for a collection of Special Purpose Vehicles [*] and associated companies [**] used by Northern Rock.

According to hard-left MP John McDonnell, Granite “holds approximately 40% of Northern Rock’s assets, around £40bn… where Northern Rock’s best assets sit outside the reach of taxpayers. So the bill to nationalise Northern Rock will, in fact, be nationalising only dodgy debt“.

The good folk of Commentisfree have gone even further to town, uniting socialist idiots and right-wing idiots alike in a chorus of “someone somewhere has carried out a rather large fraud and I would like that someone prosecuted“-type comments.

There’s only one tiny problem with this kind of commentary: it’s bollocks. The mortgages in Granite are exactly the same quality as the mortgages that stayed in NR, nothing untoward took place anywhere along the line (well, not involving SPVs), and NR isn’t liable for Granite’s debts.

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Photography on London Underground is permitted

There’s an occasional debate on whether photography is allowed on the Tube, generally sparked when a staff member harrasses someone for doing it.

The answer is crystal clear: photography is indeed permitted on the Tube without express permission, as long as you don’t do anything dangerous like using a flash, or sell the pictures you take.

TfL’s website confirms that photography on the Tube is allowed for personal use. This is supported by part 10 of rule Sa109 in staff’s Working Reference Manual (I don’t have a copy, but anyone hassling you should), which says:

10.1 Passengers can take photographs with small cameras for private purposes, provided
* flashlights and/or tripods are not used
* No obstruction or inconvenience is caused to staff and/or passengers.

10.2 Representatives of the media, press or photographic agencies and film companies, and other persons taking photographs for commercial purposes must first get permission from the Press Officer.

I think the only reason this is an issue is that the TfL page on commercial photography is easier to find than the one on general photography, and hence one gets mistaken for the other. Hopefully this post will help direct people to the right places…

(thanks to, and also; in response to the comments here)

Am I missing something here?

A surprisingly large number of commentators seem to believe that Northern Rock’s shareholders should be eligible for some kind of compensation, following the bank’s nationalisation. To me, this seems utterly bizarre.

According to the Merril/Citi/Blackstone plan to sell Northern Rock in October 2007 (which was leaked by Bad People, and which certainly can’t be found anywhere on the Internet these days), the bank had mortgage assets in October 2007 of just over £100bn, and liabilities to retail depositors, commercial lenders and the UK government of just under £100bn, giving the company shareholders’ equity of somewhere well south of £5bn (based on its balance sheet, not on share prices).

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