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…