Tax Avoidance; how do big companies escape paying tax?

Big companies like Starbucks and Amazon makes millions of pounds each year. Yet somehow they seem to be paying less tax than the rest of us. Say what?

 

Tax avoidance 101: what do companies pay tax on?

Companies in the UK must pay corporation tax. This is a tax on the profits a company makes. It’s worth mentioning that profits are not the same as sales. Profits are your total sales, minus your costs. Basically what’s leftover at the end.

At the moment the corporation tax rate in the UK is 20%.

So if your company makes £100 in profit, you would need to pay £20 in corporation tax to HM revenue and customs.

All good in theory. Yet in reality many large companies are bringing in big profits, but paying low amounts of tax.

[SOR tax evaders video]

According to charity group Actionaid the UK’s top 98 companies are using tax havens. These are countries which offer businesses and individuals low tax rates.

Errr… how do big companies end up paying so little tax?

Two key terms: tax avoidance and tax evasion. They sound the same, but are actually very different.

Tax Avoidance - Scene from "Empire" I don't do taxes

Tax Evasion and Tax Avoidance – know the difference

Tax avoidance is legally using loopholes in the law to reduce the amount of tax that you pay. We’ll repeat again, legal.

Tax evasion is illegally escaping paying taxes, usually by hiding your income.

When we hear about big companies in tax scandals, we’re probably hearing about tax avoidance. In these cases the companies haven’t broken the law. They’ve just worked the system to lower their tax bill. Sneaky or what?

There are a variety of ways that companies can legally lower their tax bill. Most involve lowering profits – as low profits mean you pay less tax.

However, if the profits were actually lowered then the company would be making less money. Cue lots of anger from investors.

Stephanie Flanders from the BBC explains how moving money around within a company can reduce profits (therefore reducing tax) and save you a lot of £££.

 

 

Still confused? Tim Bennett from Money Week goes into a little more detail;

 

In nutshell: UK section of the company buys and sells to other branches overseas – the cost of doing this reduces the company’s profits (which reduces the tax bill) while most of the money remains within the company.

Or in other words: UK tax law is a f@%king mess.

 

Why should I care?

People get very angry about big business seeming to have an opt-out from paying taxes, whilst most mere mortals have no choice in the matter.

Tax Avoidance - TV host Jimmy Fallon looking outrages

People be like “WTF, mate”

The current debate over tax avoidance erupted around the time of the Occupy Movement. This is an international organisation campaigning against social and economic inequality. Occupy’s slogan “we are the 99%” highlights how the 1% minority seem to play by different rules to the rest of us.

Large companies can afford to pay teams of legal experts to find potential loopholes in tax law.

They can also afford to set-up and run their business from countries with lower tax thresholds. Both of these are options that smaller companies potentially don’t have.

 

 

Big companies be like "err.. we do pay tax.."

Big companies be like “err.. we do pay tax..”

Our taxes pay for public services like roads, schools, hospitals and the police.

Anti-tax avoidance campaigners argue that companies avoiding paying tax are depriving the country of money which goes towards these things. They believe that companies which operate and benefit from a country should all pay the same tax as the rest of us.

The Robin Hood Tax idea goes even further, suggesting we should charge a tax on all large financial transactions which would pay for public services.

However big multinational corporations say that they do pay the correct amount of tax. Legally this is true. Who’s to say whether this is a “fair” amount or not?

 

As Toby Young explains there is no real definition of a “fair” share of tax. Therefore if we think the fair share is actually higher than the rate set by the government then everyone who fails to volunteer to pay more tax is guilty of tax avoidance. Slightly awkward.

 

Tax Avoidance - a group of people raise their hands

Hands up who’s avoided tax buying stuff in Duty Free?

There is also the elephant in the room – that most of us have probably avoided tax at some point in our lives.

Picked up some cheap booze at the Duty Free stand after a holiday?

Yep, that’s technically avoiding tax. Perfectly legal though.

So, do we only care about tax avoidance when it is large companies involved? If so, there’s something of a double standard going on here.

 

Even if it seems like tax avoidance is bending the rules, a 1936 court case sets the precedent that this is fine. A ruling by Lord Tomlin on the Duke of Westminster’s tax arrangements stated;

 

“Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”

Meaning: people may not like it but as long as you’ve stayed within the law then it’s all good.

 

What to do next?

Boycott Starbucks over tax evasion

Is boycotting a long-term option?

Many people who disagree with tax avoidance protest by boycotting the company involved.

For Starbucks this is easier than you think. I’ll just get my soy double shot espresso macchiato from another shop. Amazon? OK, fine, I’ll have to do my shopping in real life. Slightly annoying but all for a good a cause.

Boycott Facebook? Riiiight, so how are people going to see my latest selfie?

How about Google? WELL HOW THE HELL AM I GOING TO KNOW HOW TO GET ANYWHERE??!*

Sooo… boycotting may not work long-term.

However, you could write to your MP raising the issue, or join any one of the many organisations campaigning against tax avoidance. Or maybe you think the tax system works just fine. Let us know in the comments below.

 

* We hear great things about paper maps.

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In light of Amazon: 9 to 5 work is dead now anyway

 

An article about Amazon’s working conditions makes us analyse the modern working world as we know it. 

 

What’s the story?

Amazon's head office front door. New York Times Amazon Report: 9 to 5 is dead now anyway

9 to 5 is dead: Amazon’s working conditions have been criticised

Everyone is talking about a New York Times article: “Inside Amazon: Wrestling big ideas in a bruising workplace”. It describes what it’s like working at the retail giant. Apparently the bosses at Amazon are conducting an “experiment” into how far they can push their workers. Employees describe working 80 hour weeks. They are pressured into working nights and weekends. There is a total lack of work/life balance. Amazon boss Jeff Bezos says the Amazon described is “not the Amazon I know”. Right or wrong, the report has got people thinking whether the “9 to 5” working day is a thing of the past.

 

Working 9 to 5? At Amazon it’s more like 24/7

Large amounts of the NYT article detail the long hours Amazon employees are expected to work. Workers sometimes receive emails in the middle of the night, and are then pestered to answer by text. This seems to sound familiar though? 

Bankers, lawyers, doctors and service industry workers are just some examples of employees expected to work late, or start early. Banking website Wall Street Oasis reports that employees at banks like Rothschild, Barclays and Citigroup work over 70 hours a week on average. The Telegraph reported last year that junior doctors were working 100 hour weeks. These are all professions which have been around a long, long time.

Amazon warehouse. Vox news say things are a lot worse for Blue collar workers. New York Times Amazon Report: 9 to 5 is dead now anyway

Amazon’s warehouse workers definitely don’t work 9 to 5. Why didn’t the New York Times write about this?

So, maybe the viewpoint that “9 to 5 is dead” isn’t so new after all.

Vox News argued that the NYT article focuses on “white collar” workers. Think: office working professionals. Vox claims workers in Amazon warehouses have it a lot worse.  They face tough working conditions, low pay and a constant threat of dismissal. They have less chance of finding employment elsewhere than the “white collar” professionals. However, once the warehouse workers clock off, it’s unlikely their bosses will email them asking them to finish a piece of work. So, at least that’s something.

The NYT report compares how Amazon, Google and Facebook manage their workers. Google and Facebook motivate their staff with rewards (gym passes, meals, sleep pods). Amazon “offers no pretence that catering to employees is a priority”. Who is to say which is better? Amazon is currently worth around $175 billion.  

Journalist Sara Robinson notes that research in the 1980s found that working  60 or 70 hour weeks resulted in short-term gains. However, “increasing a team’s hours in the office by 50 percent (from 40 to 60 hours) does not result in 50 percent more output.” So, regularly getting employees to work longer once they’ve done their 40 hours is “a stupid and abusive way to burn up profits.” Back to the drawing board then. Perhaps we should just see the Amazon article as an insight to a successful (if divisive) company. We are talking about THE leading tech company in the world, right?

 

Work hard, play hard, work harder seems to just be the norm now

While Amazon is being criticised for its working practices, working harder and longer seems to be the norm for many companies. Other tech companies especially seem to be joining Amazon in demanding more from their workers. Innovation is key, and falling behind is not an option.

An office cubicle wall with post it notes for productivity. New York Times Amazon Report:9 to 5 is dead now anyway

Amazon may have it wrong. Working more than 9 to 5 may not make you more productive

Just how much of our lives do we spend working? According to the Office of National Statistics (ONS) the UK average working week is 39.2 hours per week. France introduced a 35 hour working week in 2000. However in 2011, it was reported that French workers were putting in 39.5 hours on average. Mon Dieu!

At 46.7 hours per week on average it would seem the USA works more hours than most European countries. Yet Asian countries work more hours than America. Is it productive? There are many ways to measure how productive a country is. One way is to divide a country’s Gross Domestic Product (GDP) by the number of hours worked. GDP is the monetary value of all goods and services produced in the country. With us so far?

The ONS say Britain isn’t doing too well in this area. British productivity is 17% less than the average of other developed G7 countries. The G7 contains Canada, France, Germany, Italy, Japan, UK and USA. This “productivity gap” is the widest it’s been in 20 years. Ouch.

The latest statistics say the average Brit works 1,669 hours a year. This is more than France at 1,489 hours and Germany at 1,363 hours. So, we are working longer hours, but producing less. Germany works fewer hours on average, yet they are producing more than us. In fact the UK produces 30% less per hour than Germany and France. Very poor form chaps.

One of the main problems with working out productivity is there is so, so much data to look at. Even when you find what you’re looking for, it will soon be out of date. When researching this article we found that many sources containing average working hours and productivity figure seemed to contradict one another.

The bottom line: a country’s efficiency isn’t just to do with how many hours they work. But it seems the UK has something to prove when it comes to productivity. Increasing working hours may not be the answer.

 

If 9 to 5 is dead, what’s the new trend?

Millennials are those born in the early 1980s to the early 2000s. They are the new workforce, and research says that compared to previous generations, they have a different approach to work.

Wednesday, June 12, 2013 To kick off our prep work for the Global Youth Summit, the ITU hosted special one-day MILLENNIALS JAM WORKSHOP at its ICT Discover Center, with an exclusive and select group of 40 entrepreneurial young people. The objective of this unique one-day event is to crowd-source a more detailed framework for the Summit where approximately 25,000 young people will input their ideas for the post-2015 global development agenda. ITU/Rowan Farrell New York Times Amazon Report: 9 to 5 is dead now anyway

Be your own boss: Millennials are ditching 9 to 5 to start their own businesses

The Intelligence Group is a research company focusing on young people. Forbes reports on The Intelligence Group who found that Millennials want to feel their work matters. They want flexibility in their work schedule. They want “to invest in a place where they can make a difference, preferably a place that itself makes a difference.”

Job website Timewise says that 14.1 million Brits want flexibility in their work schedule. But when looking at 3.5 million job adverts they saw that only 6% offered flexibility and a good salary. London was the worst. Does this mean the UK is following the Amazon style of work: long hours and little flexibility? If so, the Millennials don’t seem too fussed. Self-employment and freelancing is on the rise.

Millennials were either studying or entering work at the time of the financial crisis. Perhaps this means they see a job differently to previous generations: not for life, but an opportunity to learn new skill sets and build a network of contacts.

According to research by the Kauffman Foundation over half of 18 to 34s want to start their own business. They are adept at working remotely – from home, in coffee shops or “hot desking”. They also want to work in collaborative environments. This is potentially why so many companies are replacing offices and cubicles in the workplace for an open plan design. Advertising agency Grey even created a “Millennials only” section to their office.

Millennials want flexibility and to work remotely. Don’t make the mistake of calling them lazy though. A separate study found that 89% of Millennials admit to checking work emails “out of hours”. Though, with 9 to 5 seemingly out the window, is there such thing as out of hours anymore?

By 2020, around 40% of the US workforce will be made up of Millennials. Eventually bosses will need to adapt to the needs of this generation. Let’s start by busting the myth working longer makes you more productive.

 

Learnings: 9 to 5 is dead

It’s time to start embracing change, and with that in mind let’s be specific about what we are crucifying Amazon for. Feeling like you’re working too hard? Sharing this post will definitely make you feel better.

 

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