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Zero (in)tolerance (part 1)

April 18, 2017

Zero has been in the tax press rather a lot recently. Often it’s about companies paying zero tax on (a lot) more than zero profits.

 

US intolerance

The latest variation on this theme is a report from the US based Institute on Taxation and Economic Policy that has researched the Federal taxes paid on US profits by 258 Fortune 500 companies. There are many impressive statistics quoted in the report such as one which says that 100 of the surveyed companies paid zero federal taxes in at least one of the  years covered (2008-2015). The report suggests this was not a result of losses suffered by any of the companies (well, not in the years in question, at least). That may be so, but, to (mis)quote Mark Twain, we know there are lies, damned lies, and statistics, so we should be careful what conclusions we draw from all of this. Indeed, the report itself points out that some of the profits reported as “US profits” are actually earned in tax haven countries like Bermuda or the Cayman Islands, and that this partly explains the low effective tax rates noted in the report. That may be so, but it does not alter the fact that the report offers much food for thought, both for those currently arguing that US companies are overtaxed as for those arguing the exact opposite.

 

Swiss intolerance

On another note, few will have missed the recent full page ads from a well-known Swiss bank pledging zero intolerance for tax evaders. This was of course a laudable gesture, although you may question whether mentioning the “very significant asset outflows” that resulted from their 2011 client review was particularly good PR, even if the past is the past. Anyway good to know that they’ve reinvented themselves in this respect, albeit in a slimmed down version.

 

Scottish (well, UK) intolerance

We’ve also seen Scottish ‘zero-tax offshore companies’ come into the firing line. Actually, these weren’t companies at all, but transparent limited partnerships. And they were no less taxed than your average transparent limited partnerships are in most countries. The real problem seems to have been their lack of transparency as regards ownership and that this was facilitating a whole host of illegal activities such as money laundering and tax evasion, not to mention possibly also tax avoidance. Well, the UK government has  decided something must be done (in between sorting out Brexit) and has announced a full scale enquiry.

 

EU intolerance

And let’s not forget the EU’s upcoming blacklist of ‘non-cooperative tax jurisdictions’ and the criteria for being put on it, or, more importantly not being put on it. The main issue here is whether or not, and if so how a zero tax rate could be held against you. While it was clear that a zero or low tax rate for a special tax regime could get you into trouble, the status of countries that simply don’t have a corporate income tax, or if they do, apply it generally, at a zero or almost zero rate, was uncertain. The good news is that an agreement has been reached on this. The bad news is that we’ve not been told what the agreement is. Luckily for us the agreement, while officially not (yet) in the public domain, has been made available by a member of the European Parliament (who obviously believes more in transparency than the Council of the EU does). To cut an otherwise long story short you can read the details here.

 

More zero (in)tolerance coming up…….

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