This is not an anti-rich argument.

As an aside, I’m disappointed with the lack of reform over exorbitant bonuses for investment banker. The concern voiced by the LibDems is that they cause excessive risk taking and may have contributed to credit-worthiness fiasco that’s been so globally damaging. If nothing is done, what is to stop it happening again?

I’d say with this in mind it’s probably wise to not bite the hand that feeds you

Who baled them out of the mess they got into?
Have you missed the last few years in the banking sector?
We baled them out , economy goes pear shaped, spending is cut, jobs are lost taxpayers own the banks ah sod it let them keep the bonuses and you suggest to tax them is biting the hand that feeds you. You are Geroge Osbourne and I claim My £5

Except that we’re talking here about a tax that also affects banks that didn’t fail and didn’t cause these problems, remember?

scoialism for the banks, capitalism for the rest of us innit

Who baled them out of the mess they got into?
Have you missed the last few years in the banking sector?
We baled them out , economy goes pear shaped, spending is cut, jobs are lost taxpayers own the banks ah sod it let them keep the bonuses and you suggest to tax them is biting the hand that feeds you. You are Geroge Osbourne and I claim My £5

What if your bank went breasts vertical tomorrow and the government stepped in to bail YOU out by giving you the money back you had deposited with your bank.

Would you be complaining then?

You are comparing savings with investments – surely the reward for the investment risk is profit the risk is loosing your money or have I misuderstood the capitalist banking PR BS?
If they did not guarantee my money was still there I would just not put it in a bank after al it is my money noth theirs.
Saving your money and investing it are not the same.

Can you name another industry baled out by the govt in the last 30 years ?

It’s all skirmishing, when the report comes out recommending separation of retail banking then the real fight starts

If you believe what your read in such a hugely left wing biased rag, you must need your head seeing to!

Did the Guardian have much to say about Margaret Hodge slating the way Labour wasted a billion pounds on the M25 widening scheme? I doubt it, but sure enough, we tax payers will have to foot the bill.

I can’t believe an intelligent person can take socialism seriously after the last government’s 13 year charade! WAKE UP GUYS!

Easing corporation tax will make UK businesses more competitive and will attract investment. Global companies will choose to base themselves here too.

Financial institutions will be more successful and so in turn will be the investors. Investors such as local authorities, pension providers etc etc.

Increased business for these firms will generate opportunities for the legion of companies that provide services right down the foodchain.

Increased business will mean higher tax receipts too.

I guess a muppet with their judgement on the economy clouded by a fog of left wing ideology would just not get that!

Can you name another industry baled out by the govt in the last 30 years ?

Not a bailout, no, absolutely definitely not, Mandy said so.

Spongebob – Member

“I can’t believe an intelligent person can take socialism seriously after the last government’s 13 year charade!”

I can’t believe an intelligent person can take seriously the suggestion that we had a socialist government 😆

Easing corporation tax will make UK businesses more competitive and will attract investment. Global companies will choose to base themselves here too.

worked out really well for ireland 😉

The UK’s financial services sector contributed an estimated £67.8bn to UK government taxes in the financial year ending 31 March 2007, 13.9% of the total UK tax take a report by PricewaterhouseCoopers LLP (PwC) for the City of London Corporation has found.

In 2009 the ONS said that it planned to incorporate the debts and liabilities of the Royal Bank of Scotland (RBS) and Lloyds Banking Group into the public finance balance sheet.

It said this could add between £1tn and £1.5tn to public sector debt.

Who’s doing the biting and who’s doing the feeding?

duntmatter – since you obviously seem to well versed in the mechanics, perhaps you can tell everyone what happens on the other side of the balance sheet at the same time that those debts and liabilities are added ❓ and what the net position might be.

Evil Condem Bastards!

http://www.grough.co.uk/magazine/2011/02/08/mp-claims-victory-for-mountain-rescue-teams-tax-refund-campaign

I don’t respond well to bad manners.

thread flounce ?

I don’t respond well to bad manners.

well you’re the one that started insulting the intelligence.

When a corporation is nationalised and it is not permitted to be an off-balance sheet holding (which it was until they agree a different accounting approach) is classified as a public sector corporation. When it goes on the government books they initially enter the gross liabilities of the corporation – they cant recognise the assets until dis-investment. When (not if) UK plc sells it’s stake in RBS and Lloyds it will realise the 84% holding in RBS and 41% holding in Lloyds Banking group which curently have a market value of (84% x £26bn + 41% x £45bn = £40bn.

IIRC correctly UK plc stuck about £37bn into the recapitalisation of the three banks HBOS, RBS and Lloyds.

EDIT: And anyway, I’m sorry if my curt reply came over as rude, but if you will only quote the Guardian side of the facts it grates and perpetuates ill-informed opinions. If more people spent a bit longer trying to understand what goes on behind the headline numbers that the media feeds them then there might possibly be a little less fear and also probably “banking and it’s bonuses” wouldnt be able to hide behind an aura of “black magic” and be better held to account. So Im sorry.

cough

That article is total horseshit, as you might expect from Monbiot and the Guardian.

Branch exemption is part of a package of tax reform designed to ensure that UK companies pay tax on their UK profits but don’t pay UK tax on profits that have nothing to do with the UK. Branch exemption is common in developed economies, so it’s about competitiveness and keeping our large, successful multinationals. It will have very little impact on companies with a largely UK business, and should help keep companies like HSBC from moving their head office out of the UK. (This has started to happen – Shire Pharmaceutical and WPP have done this already, and there are plenty of others considering it.

The whole thing is very much a project started under the last government that is finally being completed under this one.

Companies usually have branches (rather than subsidiaries) for practical, historic or regulatory reasons that are nothing to do with tax, but obviously that is not a concern of Monbiot.

Some background to the whole thing, if anyone cares.

1) Dividend exemption

Since 1 July 2009, dividends from foreign subsidiaries paid to a UK parent company have been exempt from UK tax. This is partly driven by EU law and free movement of capital – until the dividend exemption, if a UK company owned a UK subsidiary then dividends were exempt, but if it owned a subsidiary in another EU country then that was a taxable dividend.

That meant there was discrimination against investment in another EU country and that is against EU law. Why the last government went so far as to exempt any dividend, who knows, but that’s what they did.

2) CFC rules and anti-avoidance

The UK, like most countries, has controlled foreign company rules, or CFC rules for short. These are anti-avoidance rules that are designed to stop companies setting up shop in tax havens when their real activities are elsewhere. The rules are horrendous in detail but in principle, if you have a company in a low tax jurisdiction it must be a genuine business operating there rather than a nameplate for a UK business. You couldn’t, for example, set up a business in the Cayman Islands that runs shops in the UK, or provides services to your UK business in such a way that the profit comes out in the Cayman islands. Two main ways this is stopped. First, if you had a UK parent it would get nobbed with a CFC charge (i.e. the Cayman Islands company profits would be deemed to arise in the UK parent and taxed here – this is a bad thing as you don’t get a lot of the reliefs and allowances that a UK company would get). Second, if you had no UK companies, you would have a Permanent Establishment (or branch) in the UK and it would be taxed as if it was a UK company. Either way, you can’t generally route profits earned in the UK through a tax haven and dodge UK tax. Obviously the system ain’t perfect, but in general it works reasonably well.

3) Branch exemption

All that leaves us with a bit of a discontinuity. Say UK company has a subsidiary in France, then the profits earned in France are taxed there (as that company is tax resident in France) and the dividend paid up to the UK parent is exempt.

Same company has a branch in Germany – profits earned in Germany are taxed in Germany, but also included in the UK taxable profit. This gives you double taxation, so double tax relief was invented. You basically get credit for tax paid in Germany against your UK tax charge. Problem solved? Not always.

One example, say your UK business has had a bad year and you make a loss of £2m. Your small German branch has done well and makes a profit of £0.5m, on which it pays tax of £0.2m in Germany.

So in the UK your tax calculation gives you a loss of £1.5m (+0.5 in Germany, -2 in the UK), but you’ve suffered £0.2m of tax in Germany. Suddenly your German branch profits reduce your UK loss you can carry forward and you have no UK tax so you don’t get double tax relief. You end up with a UK tax loss of £1.5m but economically you’ve got a loss after tax of £1.7m

If you had a German subsidiary then you’d have had a £2m loss in the UK and a net profit of £0.3m, which is your economic position.

So along comes branch exemption. Again horribly complex in practice, but in principle it puts branches and subs in the same position. So probably a good thing.

Stu – great post, thanks for taking the time to type that all out. I found that very informative.

Well, I could unpick the article line by line, but frankly I can’t be arsed. It is so uttetly factually flawed from start to finish that the conclusion is built on sand.

Things is when you explain it, defuse it, no-one seems to take it in and think twice before the next headline.

I wonder what odds you could get on the NHS finally going under due to the sudden massive upsurge in demand for rectal prolapse repair surgery.

so what’s the difference between a subsidiary and a branch, then – something to do with protection of assets when things go tits-up for part of a business ?

a subsidiary, Im guessing (Stu will correct me) is a locally incorporated entity. branch will be simply a local representation of an overseas incorporated entity.

asset protection (UK anyway) is based on FSA registration so you have to watch out for group companies and brands which might appear to be separate entities but actually all come under a single registration so you only get one £50k (or is it more?) cover on your deposits.

no-one seems to take it in and think twice before the next headline

are you accusing journalists of sensationalising stories now and him in particular

actually Im thinking a little closer to home JY 😉

Monbiot is paid to be a nitwit. In here Im assuming they do it for free 🙂

a subsidiary, Im guessing (Stu will correct me) is a locally incorporated entity. branch will be simply a local representation of an overseas incorporated entity.

asset protection (UK anyway) is based on FSA registration so you have to watch out for group companies and brands which might appear to be separate entities but actually all come under a single registration so you only get one £50k (or is it more?) cover on your deposits.

Sorry, no idea what that (para 1) meant stoner 😯

I really meant what difference to a business, and following on, if they are different commercially then why should they be taxed identically ?

A subsidiary is a company in its own right. It just might be partially or wholly owned by a group company that’s domiciled somewhere else, in a different tax jurisdiction. Stu’s post explains how tax is paid under different business structures and there’s nothing I can add to his post.

The different holdings aren’t taxed identically, its just that the group holding company then doesn’t get penalised by being over taxed. A company will chose to undertake it’s business in different companies/tax jurisdictions using different corporate structures not necessarily for tax reasons but also for risk/ownership/regulatory reasons. Tax shouldnt penalise that.

sorry, yeh, I see the def of subsidiary vs branch

What’s in it for Scaredycorp though ?

If I minimise my corporate risk using one of these means when expanding abroad or even within a market (my guess would be as a subsidiary) that would imply to me that somebody else (the new host country or new “market”) is shouldering a bigger risk somehow. My feeling would be that I might expect Scaredycorp to have to pay more by some means or other to that bearer of risk

(I am inherently distrustful of subsidiaries – largely driven by ignorance, maybe, but I just don’t see an obvious value and this says “loophole” to me)

My suspicion is that this “equalisation” will eventually show us where the benefit lies, as UK companies will set up far more of one than the other in future

Subsidiaries might simply be that you set up a branded local operation in joint venture with a local company with local know-how and capital. Its a way of buying into a market.

Some markets might require local ownership (top of head: Zimbabwe Crap illustration but you get the point) as a regulatory requirement.

Some markets might require local ownership (top of head: Zimbabwe Crap illustration but you get the point) as a regulatory requirement.

I imagine that’s to ensure some tax rev stays local rather than being “misplaced” in internal accounting ? (ie localisation of responsibility, financial and otherwise). I can imagine I’d want that if I was a smallish country (top of head – doesn’t switzerland require similar)?

I also suspect that maybe the big co. can avoid any massive liability by distancing itself from actions of this spinoff? Would that also be in the interest of the big company’s home nation – avoiding losses or collapse of one of it’s industrial pillars at slight cost of lost tax revenue ? Struggling here, as I haven’t found a loser yet and it can’t be that simple

BP in Azerbaijan/Russia is a good example of the ball ache that is JV’s in freaky jurisdictions with rights ownerships and regulatory restrictions.

I imagine that’s to ensure some tax rev stays local

In most countries you cant just absolve your local tax liability by being a foreign owned company. You still pay tax at the local corporate rate on your locally generated revenue taxable profit. What this is all about is how much tax you pay on repatriated income.

anyway, off to bed

Most multinationals use subsidiaries for a variety of commercial reasons, such as limiting risk (limited liability in the coutry of operation), their customers want to deal with a locally constituted company for ease (they understand how their local company law works) etc etc. The main users of branches are predominately banks so they don’t have to meet capital requirements in multiple jurisdictions. The aim of many tax systems (OECD especially) is broadly to ensure that there is little difference in treatment no matter which form is chosen for tax purposes.

yet more incentive to hate the tories (as if it was needed).

actually Im thinking a little closer to home JY

Monbiot is paid to be a nitwit. In here Im assuming they do it for free

There’s the money shot 😆

They work for the people who fund their parties, run the banks and own the newspapers, shielding them from their obligations to society, insulating them from democratic challenge.

Good point well made, very few people are wealthy enough to be true tories.

Excellent post Stu N – thanks.

On a wider point, it really does bug me when journalists in general know nothing about a subject and then try to pass off a load of regurgitated mixed-up points and create a sensational conclusion based on no fact. The worrying thing is then Joe Public believes it. A lot of hysteria is generated around a non-issue and the real issues pass through un-noticed. It’s lazy and dangerous and stupid. Journalists really should stick to what they are expert in rather than re-hashing and passing themselves off as experts. The article that triggered this off is a great example but by no means the only one.

On reading Moonbat’s article I was mildly outraged because I have no idea if he is correct or not, borne largely of a disinterest in international corporate law and an ignorance of the status quo. Stu_n’s post is one of the reasons I love STW. Cheers.