There has been legislation in this country for many years on what is called transfer pricing.

Say a company in the UK does business with a company in Bulgaria for instance and the two companies are part pf a group of companies. The UK company pays £1 milliion for something which should have cost £400,000. So the UK company loses £600,000 and the Bulgarian company gains £600,000. As far as the group is concerned as it owns both companies, there's no effect on the overall profit. But the UK company pays corporation tax at 20% and the Bulgarian company only pays corporation tax at 10%. So the UK company pays £120,000 less tax, and the Bulgarian company paya £60,000 more tax. Overall, the group pays £60,000 less tax.

That's transfer pricing. The legilsation gives HMRC the power to step in and tax the UK on the extra £600,000 profit it would have made if it had paid only £400,000 instead of £1 million.

It's the HMRC which should be criticised for not acting decisively enough. Problem is the the number of staff at the HMRC has been slashed in recent years. And are they concerned that if they are too aggressive with the international companies, those companies will stop doing business putting their UK employees' jobs at risk.

There was a very interesting show on BBC2 last night about a town in Wales where a few small businesses had got together to see if they could work around the tax laws like the multi nationals do. I fell asleep before the end, but hit record, so I'll let you know how they got on. 

Cinds posted:

There was a very interesting show on BBC2 last night about a town in Wales where a few small businesses had got together to see if they could work around the tax laws like the multi nationals do. I fell asleep before the end, but hit record, so I'll let you know how they got on. 

Darn! I heard about that but forgot to watch.

There was an article in the Times today about six big companies in the UK who declared no taxable profits in 2014. Shell, BAT and Lloyds.

Don't know about Shell or BAT but I can understand why Lloyds wouldn't and that's because of the huge losses they had to provide for PPI claims in recent years.

With company tax, a company could have made profits every year for years and paid tax on it. Then one year it makes a huge loss. Not surprisingly it pays no tax that year. It is able to carry back some of the loss to the previous year and reclaim the tax. But it can't normally carry back the loss to earlier years. The only thing it can do is to carry forward the loss to the following year. So in the following year it could make a profit but not have to pay any tax because of those brought forward losses. I think it likely that that explains the Lloyds position.

I thought this was interesting, i just tried it and it's true!