Saturday, 23 June 2012

That Vodafone Tax Myth

14th June saw the release of a report from the National Audit Office on settling large tax disputes, where five tax settlements were reviewed by Sir Andrew Park, a retired tax judge. Company E in the report is Goldman Sachs, which I've blogged about previously and company D is Vodafone and in particular, the case where UK Uncut et al allege that it was let off £6B of tax. The following is a rebuttal of this claim using the salient points from the NAO report:

The argument is over the following:

48 The main tax issue was whether the controlled foreign companies provisions applied to subsidiary D. If so, then company D would be subject to UK tax on subsidiary D’s profits, the most significant part of which were the interest payments received from subsidiary DD.

Vodafone (company D) has a subsidiary (subsidiary D) which in turn has a subsidiary (subsidiary DD). Both subsidiaries are based outside of the UK. Subsidiary DD pays billions of Euros in interest payments to subsidiary D as one of the outcomes of the acquisition of subsidiary DD. HMRC believed that subsidiary D's profits can be taxed in the UK. Vodafone disagreed: argued that, because subsidiary D was incorporated in an EC member state, the freedom of establishment articles in the EC Treaty prohibited the use of the controlled foreign companies provisions by the UK.

In a nutshell, Vodafone's argument is that EU rules override UK law in this instance.

Despite having a decision in their favour on the application of the controlled foreign companies (CFC) laws  overturned in the Court of Appeal, Vodafone still had two defences - first, the "motive" test, i.e. that there is genuine economic activity going on in the subsidiary rather than it existing only as an artificial arrangement for tax avoidance, and second, that this case doesn't fall under the limited circumstances when the CFC laws can be applied as set out by the ECJ in the judgement of the Cadbury Schweppes case.

Rather than take it to litigation, an attempt was made to settle the case which ended up with Vodafone paying over £1B to HMRC. Sir Andrew Park said of the settlement: D had a good chance of winning both of its two arguments: the motive test defence and the Cadbury Schweppes defence. If it had won on either of these, the outcome would have been that it had no tax liability at all relating to subsidiary D’s interest income.

So settlement was the pragmatic option given that zero tax would be due in the likely event of Vodafone winning the case. Not only that:

57 Company D was only one of several major companies that had long-running disputes with the Department over the application of the controlled foreign companies provisions.

So if Vodafone had litigated and won, it could have set a precedent meaning that the companies involved with the other disputes could also have won and therefore would lose HMRC large amounts of tax revenue. Sir Andrew Park also said:

...the settlement reached was a good one and represented fair value for the wider taxpaying community.

It is also worth mentioning that the case had been running for the best part of a decade before it was settled.

As for the £6B figure that Vodafone was "let off", that number comes from Private Eye magazine and there is nothing to support it.

Friday, 22 June 2012

Tax avoidance Like the Slave Trade

Question Time asks a question:

To which I respond:

Which gets retweeted:

And then the anger starts:

Thursday, 21 June 2012

Carr Caves In

Jimmy Carr says:

I appreciate as a comedian, people will expect me to 'make light' of this situation, but I'm not going to in this statement. As this is obviously a serious matter. I met with a financial advisor and he said to me 'Do you want to pay less tax? It's totally legal'. I said 'Yes'. I now realise I've made a terrible error of judgement. Although I've been advised the K2 Tax scheme is entirely legal, and has been fully disclosed to HMRC I'm no longer involved in it and will in future conduct my financial affairs much more responsibly. Apologies to everyone. Jimmy Carr.

I'm disappointed in Carr for backing down but I understand why he's done so. Outside of the world of UK Uncut, this probably would have gone away after a few days but unfortunately, the Dear Leader's inability to utter the words "I am not prepared to comment on an individual's tax affairs" changed matters. I suspect that Carr knew if he didn't distance himself from the scheme, he would have been constantly hounded by the press, protesters, and politicians of all colours, all spurred on by Cameron's words. No doubt his work would suffer with TV appearances and other bookings drying up. The injustice here is that a man has effectively been put on trial and convicted by the hysterical masses despite acting within the law.

A side effect of making a moral judgement of someone is that you open yourself up to charges of hypocrisy if you are not whiter than white and because of this, the press are also going to have a field day trying to uncover the tax affairs of politicians, entertainers, sportsmen, and indeed anyone in the public eye. Premiership footballers and sanctimonious lefty actors beware...

Wednesday, 20 June 2012

Morally Wrong

So a comedian works hard, is successful, earns a fair bit of money from it, and then puts that money in a vehicle that significantly and legally reduces their tax bill. You'd expect the usual lefty UK Uncut outrage and envy of someone who has done far better in life than they have, but you wouldn't expect the fucking Prime Minister to stick his oar in would you? This is the guy who is meant to run the country - we've got a recession on at home and the Euro is imploding abroad and yet Cameron, who is currently at the G20 in Mexico, not only has the time to comment and make judgement on someone's tax affairs, but bases that judgement on something that he's read in the Times. You utter fuckwit Cameron. And don't try and lecture me on the morality of taxation when the little I can legally get away with paying over to HMRC gets spunked up the wall on EU membership, swathes of useless public sector workers and their fucking final salary pensions, and foreign aid to countries with nuclear weapons, space programmes, and/or hate us so much that they would quite happily see us wiped off the map.

Rant over.

A more reasoned view is that this is a legal issue and not a moral one. Please tell me how much tax someone who earns £1M in a year should morally pay. The answer is that it's impossible as morality is subjective, so if you asked a hundred people how much of this should be paid in tax, expect a hundred different answers anywhere between zero and £1M. This is why we have tax law which will dictate how much someone should pay depending on their circumstances, and in this example could legally be zero. This is one reason why Cameron should have kept his gob shut, another being that given that he has personally lit the torches and sharpened the pitchforks, Carr has no chance against HMRC and justice will be seen to be done rather actually be done.

Monday, 18 June 2012

Website Blocking Bollocks

My ISP has finally blocked the Pirate Bay:

If only there was some way of still accessing it, like with an alternative link perhaps?

Ladies and gentlemen, I hereby present to you perhaps the most pointless and futile attempt ever at censoring the internet.

Saturday, 16 June 2012

Mystery Solved

Following on from UK Uncut's court case on Wednesday, Thursday saw the release of a report from the National Audit Office on settling large tax disputes, where five tax settlements were reviewed by Sir Andrew Park, a retired tax judge. It is highly relevant to the case because it doesn't take a genius to work out that company E is Goldman Sachs and the exact same settlement that is planned to go to judicial review in October. Here are the details:


67 Company E is a UK-resident company, and part of a multinational group of companies, group E. The Department arranged a meeting with company E’s senior staff with the aim of agreeing a way of resolving company E’s outstanding tax issues.

The tax issues

68 The Department and the company considered six tax issues in the meeting:

• The payment of employer’s National Insurance contributions (NICs) on adjustable share options granted by company E to employees under a plan used by the company more than a decade previously. Company E argued that under the plan, employer’s NICs were not payable. The Department argued that they were.

• Interest on the employer’s NICs if they ought to have been paid.

• Three other technical issues that arose from the specialised nature of company E’s business. Company E and the Department had been exchanging arguments on these issues for some time.

• An issue where the Department was considering challenging what company E (in common with many other companies) had assumed to be the tax treatment of an aspect of its employment arrangements.

The point that I've highlighted is the crux of the UK Uncut case - it isn't actually about being let off tax as they would have you believe, just the interest on it. This is said to be around £10 million or £20 million depending on what part of their article you read.

This next point is important:

• Interest on employer’s NICs - Some years before its meeting with company E, the Department had reached settlements with over 20 other companies using the same share options scheme. The settlement that the Department agreed with these companies was that the companies would pay the employer’s NICs liability in full, but would not pay any interest relating to the late payment of this liability. Company E was offered the same settlement terms at the time, but refused them.

So none of the other companies that settled had to pay interest on their liability.

After a bit of to-ing and fro-ing over in the courts as to whether or not HMRC had been assessing the correct Goldman Sachs group company, we finally have a settlement agreed over the tax issues mentioned above:

74 At the meeting with company E, the issues were settled as follows:

• Employer’s NICs Company E agreed to pay the full liability.

• Interest on employer’s NICs The Department agreed not to charge interest on the employer’s NICs liability.

• The three technical issues Company E conceded two of these issues. The Department conceded the other.

• Employment arrangements issue The Department agreed to discontinue their investigation of this issue.

So the settlement was in line with the 20 or so other ones on the same issue, albeit five years later. This is where the contention starts - internal procedures were not followed and the interest for the five years from when the other companies settled ended up being waived. This has been recognised in the report:

78 Sir Andrew Park noted that several things went wrong in the process by which the settlement was agreed. Despite the significant procedural issues, Sir Andrew Park’s conclusion is that the overall settlement reached was reasonable considering all the circumstances. Had the only issue been settling the employer’s NICs liability and charging related interest, he would not have viewed the settlement as a reasonable one. However, when the settlement is viewed as one settlement covering six issues, including the interest issue, it was reasonable.


85 Given that there was no legal barrier to charging interest, Sir Andrew Park concluded that the agreement reached at the meeting with company E to not charge interest was a deliberate decision that made sense in the context of reaching a settlement on all the issues under consideration. He accepts that officials of the Department may genuinely have believed that there was a barrier.

In summary, interest was waived as part of a settlement on the other five long running, larger issues and in that context can be considered reasonable. There is room for improvement in HMRC's processes though.

As well as clarifying the Vodafone case (company D), the report pretty much kills off any of the grounds for judicial review. It's hard to see from this how the decision to settle could be considered either illegal or irrational, and although procedures were not followed correctly in making the decision, these were internal rather than those prescribed by statute. I predict that the case gets quietly dropped, although on the other hand, it wouldn't surprise me that with a £20k fighting fund, they will stubbornly take it to court, lose, have enough to cover HMRC's costs, and then claim that the report and the court case were a whitewash.

Wednesday, 13 June 2012

UK Uncut in the Courts

And not in the aftermath of one of their direct actions either. I'm a pretty harsh critic of UK Uncut and with good reason, but I'll admit that this got my interest:

A High Court judge has declared that the anti-cuts campaign group UK Uncut Legal Action should be allowed to take forward their case against HMRC over its decision to let banking giant Goldman Sachs off of up to £20 million in tax- owed since December 2010.

So the taxman is in for a minor windfall? No.

The judge did not give permission for the group to take forwards a claim seeking to ‘quash’ or strike down the deal

What is now left of the case is that a judicial review will take place to see if the deal was legal. I suspect that this is a bit of a disappointment for UK Uncut as even if the court rules that it was illegal, Goldman Sachs won't be opening their wallet and HMRC will just come out with the usual "lessons will be learned" boilerplate statement kept handy for when the public sector fucks up. In short, nothing changes.

They are of course reasons why HMRC would settle. In response to the court case today, they said:

For legal reasons we can’t comment further on the application at his stage. However, large business tax settlements are a vital part of how HMRC secures tax revenues for the country and without them Britain’s public finances would be seriously damaged.

I don't buy conspiracy theories about secret deals over supper - complexity of tax law means that loopholes exist and battles are fought in court over liabilities. Until such time as Parliament simplifies matters, HMRC has to work with what it's got and protracted legal battles cost money. If victory is uncertain on both sides and time in the courts potentially costing more than the tax claimed due, settlement is pragmatic; HMRC get a guaranteed chunk of what they believed was owed and don't risk losing or more money being swallowed up in legal costs.

Another reason for settlement rather than going through the courts for a judge's decision on the interpretation of the law is the potential for precedent setting. If HMRC were to challenge and lose, there is a risk of appeal from companies that have settled up on the same issue. That could cost HMRC (read, the taxpayer) shed loads in tax refunds if it picks the wrong battle. I am sure that is not the intention of UK Uncut, but judicial reviews around the reasoning for tax settlements could indeed have this consequence.

Bye Bye Occupy

Occupy proudly announce a new camp:

The Occupy Nomad camp in London has just arrived and are building a new space for political discussion in Hampstead Heath – the Vale of Health, which is managed by the City of London Corporation. The City of London have continually courted controversy from plans to commercialise the supposed ‘public’ space from dog walkers, swimmers and local residents.

The new camp has been set up overnight – aiming to reach out to the community to talk about shared concerns as they have in other spaces in Tower Hamlets and Hackney. There are currently around 15 tents and more on the way.

However, there are by-laws to prevent camping, otherwise the place would be swarming with tents every summer:

8 No person shall without first obtaining or otherwise than in
accordance with the terms of a permit from the Council, camp out
on any open space.

Having antagonised the City of London Corporation previously, I'd say the chances of getting a permit from the council would be slim to fuck all. Then the inevitable happened:

With this and the Finsbury Square eviction now going to take place, I'd say that's pretty much it from Occupy. Besides, they were far more likely to be fighting off cottagers than capitalism camped where they were.

Monday, 11 June 2012

Astounding Ignorance

From the Telegraph:

Vodafone is facing fresh controversy over tax after it emerged that the mobile phone giant did not pay any corporation tax in Britain last year.

And how was it able to do that then?

Vodafone was able to avoid paying corporation tax in Britain last year by off-setting the bill against its capital expenditure, which rose from £516m to £575m.
It invests £1.5m a day in mobile networks in Britain, and is still writing tax off against the £5.96bn it paid the government for mobile spectrum in 2000. It also paid around £700m in payroll and other taxes last year.

So there isn't a controversy as no tax evasion or even avoidance has taken place. The company is simply investing in its network - that'll be to cope with the massive increase in data usage from smart phones and new technologies like 4G. This is a good thing - it sets the company up for the future in an extremely competitive market, hopefully to generate decent returns for its shareholders, pay tax on profits, and create jobs. Without the capex, there will not be a Vodafone UK in the future. The government of course recognises this and hence the favourable tax treatment, which applies to all companies and not just Vodafone. However, this is not good enough for UK Uncut:

Press release: UK Uncut condemn Vodafone for paying no UK corporation tax in 2011

Vodafone is one of a growing number of major multi-national businesses based in the UK that pay little or no corporation tax despite making massive profits. For example, Vodafone’s UK profits last year actually increased from £1.2 billion to £1.3 billion.

Utter simpletons.

The ignorance of UK Uncut on this doesn't surprise me but this is perhaps its biggest blunder to date. Of more concern is that the most read (and right-leaning) broadsheet in the UK has run such a misleading story. The implication here is that the UK is being portrayed as anti-business, just at a time when we need private sector investment to create jobs for people who will in turn pay taxes and probably spend a good chunk of their earnings in the UK. Not to mention the potential benefits that stable, high speed internet will bring to the economy.

Saturday, 9 June 2012

New Toy

OK not really a toy, it's a Raspberry Pi:

The Raspberry Pi is a single-board computer developed in the UK by the Raspberry Pi Foundation with the intention of stimulating the teaching of basic computer science in schools. The device also features high performance video and graphic capability as well as a low price (25 USD).

And here's mine just out of the box:

As someone who grew up with the BBC series of computers, I'm pleased to see something that not only evokes their memory but also attempts to bring back the original concept of computer literacy to the present day.
There are two problems that I see today; computer literacy now means being able to use Word and Excel, and that's most of the GCSE ICT syllabus covered, and second, most consumer electronics goods like smartphones are perceived as black boxes with most people having no idea about what goes on inside. I see the Raspberry Pi as a solution to this - it comes without a case with all components on display and the recommended operating system distribution comes with a load of programming tools. There are tonnes of guides and project ideas to follow and they are all free. It has a huge potential to make IT interesting for children - creating your own app beats setting up a pivot table or learning to format a Word document. I'm competent with computers but certainly not a techy, and in the 24 hours since I've had the thing, I can control it remotely from my laptop and I've set it up as a media player using an Android tablet as a remote control. And this is from a device that cost a shade over £30 including VAT and postage*. If I get it to do nothing else then I'll still be happy, however my two pre-schoolers have shown an interest already - I'll have them programming in Python before the year is out...

* OK, I spent extra on some bits and pieces because I wanted a dedicated set-up rather than cannibalise all the leads, etc. Here's what I bought and can confirm works:

HDMI Cable
SD Card
Wireless Keyboard and Mouse
And because wireless dongles don't seem to work in my house - this

Addendum on 11th June 2012 - Very important - Power supply!

Tuesday, 5 June 2012

*Sigh* Not Again...

Investigations editor for the Observer Rajeev Syal has a hard-on for telco Lycamobile. Indeed, there are three stories with his name against them in the last six weeks:

Tories' third largest donor is company that paid no tax for three years

Boris Johnson's campaign uses offices of firm that paid no tax for three years

All say pretty much the same thing; that the company pays no corporation tax and donated to Boris Johnson's mayoral campaign war chest. Both of these things are true, and it is clear from the articles that Syal has been getting his data from Companies House. Disingenuously, he's used the revenue figures in the accounts and ignored profit, with corporation tax of course being calculated on the latter rather than the former. I explained why no corporation tax was due here and Misanthrope Girl has the numbers, the company being loss making for the years in question. Without bothering to use the relevant figures, the articles just promote ignorance and serve to reinforce reader prejudice:

And one can only speculate that is the motive behind them, unless Mr. Syal really has no clue what he is talking about.

Saturday, 2 June 2012

Selective Statistics

Sainsbury’s have seen year on year profit rises from £238m in 2004/05, to £712m in 2011/12. That is a rise of 299%, say Pay Up. They are correct on that one:

Year Ending March 2012 2011 2010 2009 2008 2007 2006 2005
Underlying PBT (£M) 712 665 610 519 434 339 267 238
YoY % Change 7.1% 9.0% 17.5% 19.6% 28.0% 27.0% 12.2% -64.7%

But wait a second, check out that figure on the bottom right of the table - underlying profit before tax has dropped 64.7% in 2004/05 from the previous year. If you were look back further, the results are somewhat mixed:

Year Ending March 2004 2003 2002 2001 2000 1999 1998
Underlying PBT (£M) 675 695 627 549 580 756 728
YoY % Change -2.9% 10.8% 14.2% -5.3% -23.3% 3.8%  

What this shows is that the 2004/05 underlying PBT figures are the lowest out of the fifteen years of data. It then becomes apparent why Pay Up have chosen this year, as profits being lower now than they were in the late 90's doesn't make for as good a campaigning fact.

Pay Up Protest Post Mortem

Pay Up held their planned protest at Sainsbury's HQ as predicted on Monday. It's unclear how many showed up as they didn't release any numbers but the Livestream and photos out there would indicate less than 20. Interestingly, someone brought their kids along, poor little buggers. They've also updated their website with more details about the campaign and blocked me on Twitter, either because I gave their game away or they don't want to hear an opinion different from their own. Disappointingly, they've published this:

We have five core aims:
To make poverty pay a political issue in the UK that can no longer be ignored
To generate a public debate on the relationship between labour and capital
To make Sainsbury’s the UK’s first major Living Wage retailer
To see a living wage implemented across as much of the economy as possible, starting with profitable big business
To promote workplace self-organisation and unions
To foster joint campaigning and organisation between union and civil disobedience activists

Seriously, who the fuck appointed them to do this? Do the staff actually want a bunch of outsiders protesting on their behalf? And civil disobedience activists? They're basically demanding money with menaces.

We are a national network built on the model of UK Uncut.

Oh fuck no. A thoroughly discredited group, acting on a false premise, with little in the way of achievement bar a few publicity stunts. Given that it's the same people who are running Pay Up, it looks doomed from the outset. While they started off reasonably, holding a banner and shouting on a megaphone outside of Sainsbury's HQ for a bit, they then went on to "occupy" a nearby Sainsbury's local which was forced to close - yep, they're actually harassing the very people they purport to help. Incredibly, the kids were used as part of the occupation, presumably in an attempt to keep the police at bay - fucking disgraceful.

Although the living wage - at its' current rate of £7.20 and £8.30 - will not mean less is paid out in tax credits, the living wage does start a process towards companies not shirking their responsibility for pay. Currently £20bn is spent on WTC every year.

So this isn't actually addressing benefit dependency and subsidy to the private sector, it's just big business bashing. Not a mention about taking those on minimum wage out of the tax system, which would help far more people than just Sainsbury's workers.

Friday, 1 June 2012

Bend Over, it's Ben Dover

Once again, it looks as though some people who have allegedly downloaded smut and breached copyright are being targeted with demands for damages and threats of prosecution. There was a fair bit of this happening a couple of years ago with a shower of bastards called ACS:Law doing the harassment, although it has since been wound up with the man behind it having been found guilty of conduct unbefitting a solicitor no less than three times. Nice.
Since these are an attempt at civil prosecutions, if they were to go to court they would be decided on the balance of probabilities rather than beyond reasonable doubt, that is to say if the judge reckons that there's a 51% chance or more that you did it, then you'll be found guilty. However, if you were to receive one of these letters that have been cleared by the High Court, it probably won't contain an awful lot of evidence against you - the times and dates of the alleged file sharing, the title(s) of the works that were allegedly shared, and the IP address who was allegedly sharing the works. Your ISP would have linked your account to the IP address based on the time it was used hence why you can be traced. This proves fuck all; imagine if you live in a shared house and all use the same internet connection, you regularly let visitors connect to your network, or you leave it unsecured - all the smutmongers have done is sent the threatening letter to the bill payer and not the person who has allegedly downloaded the work(s) in question. There is no way for them to actually know or find out who really did it (if anyone actually did anything, knowing that IP addresses can be spoofed). There are only three ways in which this scam works:

1. You want to avoid hassle and pay up without a fuss. Don't do this.
2. You ignore them. ACS:Law won a few cases by default as the defendant ignored all the letters and didn't show up in court. Don't do this either.
3. Perhaps the most important, you give away information that tips that balance of probabilities. This is what the Ben Dover letter is going to try to get people to do:

"In our first letter we seek to find out more information regarding evidence of an infringement of our copyright," said Julian Becker.

"Depending on the response to our letters we will then decide our next action."

The simple answer to this is to deny the alleged offence, refuse point blank to pay them any money under any circumstances, and not to tell them anything. Anything that you do tell them, say about your network set up, who uses your network, and so on will be used against you. You are under no obligation to tell them anything or answer their questions. Their main evidence is an IP address that your ISP said that the account in your name was using. It cannot be connected to an individual user of your network. In summary, tell them to fuck off.*

* OK, caveats apply - look on the internet for a decent template letter response or get a solicitor if you're not comfortable with that. Don't consider this blog as legal advice.