• Home
  • News
  • Reports
  • About Us
    • About TaxWatch
    • Who we are
    • TaxWatch History
    • Privacy Policy
  • Contact Us

Monthly Archives: January 2020

The Sunday Times Tax List and the argument for corporation tax

28th January 2020 by George Turner

The Sunday Times published their second annual tax list over the weekend. The list, which uses publicly available data to showcase the “individuals and families who contribute most to the public purse” is pitched as a celebration of the contribution that the wealthy make to the Treasury.

Coming at the end of a week that saw the release of a letter from the Millionaires Against Pitch Forks, a call for higher taxes on the wealthy coming from a group of millionaires and billionaires, it is important to remember that there are many wealthy people who value the contribution they make to public services and do not just slip off to Monaco at the first whiff of fortune. The Sunday Times list contains a number of such people, such as Denise Coates, owner of Bet 365, who chooses to put her extraordinary £276.6m salary through the payroll, and J.K. Rowling, who The Sunday Times reports puts her £100m+ in royalties on her self-assessment form.

However, the list also contains people, such as Philip and Tina Green, and Stelios Haji-Ionnou, who have moved to Monaco, as well as the Perkins family (owners of Specsavers) of Guernsey. Although these individuals could have moved for reasons unconnected with tax – for example, Douglas and Dame Mary Perkins said they’d moved to Guernsey some 40 years ago to be closer to Dame Mary’s parents – it remains important to ask how people resident in such well known tax havens made it onto the list of top UK taxpayers? That is because The Sunday Times ranking probably tells us more about the effectiveness of wealth taxation in the UK rather than giving us an indication of the ethical conduct of taxpayers, and explains why corporation tax is such an important tax for capturing income arising from wealth.

Calculating the Tax List

Unlike some Scandinavian countries, where individuals’ tax payments are a matter of public record, the tax affairs of individuals in the UK are subject to strict secrecy laws. As a result, rather than looking at the tax paid by people, in most cases the Sunday Times has looked at taxes paid by the the businesses they own where records are available via Companies House. Primarily the ranking looks at Employers National Insurance Contributions and Corporation Tax apportioning these taxes to individuals based on their stake in the company. The list also looks at dividends paid by these companies and then assumes that UK resident individuals will pay income tax on these payments at the higher rate. As a result, the list favours people who own large UK businesses employing staff in the UK.

Who pays corporation tax?

There is a large, lively and important debate as to who really ends up paying corporation tax, a tax on the profits of companies. A number of people, particularly those who argue for cutting corporate taxes, assert that corporation tax is in the end paid for by the workers of a company. They argue that lower corporation tax will lead to higher wages for employees.

The Sunday Times entirely rejects that view, explicitly, and assumes that 100% of corporation tax is borne by the shareholders. The paper argues that this is because shareholders could choose to move operations overseas if they wanted to, but instead choose to locate their business in the UK and therefore make it liable to UK corporation tax.

Another argument of course is that if corporation tax is reduced, this leaves more profit in the company available for distribution to shareholders. Some empirical analysis has shown that any excess distributable profits overwhelmingly goes to shareholders.

Corporation tax – A withholding tax on wealth?

This debate is important for how, why, and how much we tax profits arising from business activity. If a shareholder is a UK resident, then the money they receive from corporate profits goes though two tax gateways. Corporate profits are first taxed at the corporate level through the corporation tax, and then again as income once the profits have been paid out as a dividend and are in the hands of the shareholder.

The income tax rate that individuals pay on dividends is lower than the amount paid on income from work, partly to account for the fact that corporation tax has already been paid on the distribution. If a UK resident were to move offshore to a place like Monaco, which does not charge income tax, then that corporate profit would only be subject to corporation tax, and not income tax.

Now consider what would happen if corporation tax were to be cut, as some argue it should be. If we are to accept the argument of The Sunday Times, then 100% of that benefit would accrue to the shareholder. If that shareholder was a UK resident then the impact on government revenue would be limited because the government would recoup some additional tax from the shareholder via increases in income taxes on the dividends they receive. If the shareholder was offshore, or tax exempt (e.g. a pension fund), then the UK government would lose all of the amount of the cut.

If we assume that the corporation tax primarily falls on shareholders, then The Sunday Times Tax List demonstrates its importance in ensuring that when companies generate profits in the UK at least some of that profit is taxed in the UK even if the shareholders live in Monaco, Guernsey, Bermuda or anywhere else. Following the same argument, cuts to corporation tax would disproportionately benefit those who choose to move to tax havens, as it allows them to move more profit generated from UK activities offshore and outside of the UK tax net.

A letter from our Director to the Editor of The Sunday Times was published on the issue.

Photo by Colin Watts on Unsplash

Rockstar takes the pot – 2019 accounts show huge increase in Grand Theft Auto tax claim

19th January 2020 by Alex Dunnagan

Rockstar North, the Edinburgh based company behind the wildly successful Grand Theft Auto series, has published its latest accounts, revealing a huge increase in claims for Video Games Tax Relief.

As reported in today’s Sunday Telegraph, analysis by TaxWatch shows that the claim was by far the largest for Video Games Tax Relief granted by HMRC in 2018/19, accounting for 37% of all claims made by the UK video games industry in that year.

The claim means that for the fourth year running the company has paid no UK Corporation Tax, despite the Rockstar group racking up more than $6bn sales of Grand Theft Auto V since it was released in 2014.

The accounts for 2019 show that the company claimed £37.6m in Video Games Tax Relief, taking its total to £80m since the scheme was introduced. Of the 1,110 claims made since VGTR was launched, Rockstar have accounted for a quarter of all the relief claimed from the government, whilst publishing only two games that qualify for the relief.

The claim is believed to relate to the production of the next edition of GTA, rumoured to be scheduled for release soon. Rockstar North is the lead developer for the series, although Rockstar has also registered Red Dead Redemption 2 as being ‘Culturally British’, the pre-requisite required to qualify for the relief. Studios are able to make interim claims for VGTR before a game is completed, and the huge claims being put in by Rockstar are likely related to the production costs of GTA VI. As VGTR is related to production spend, the large claim indicates the scale of Rockstar’s spending on games development.

When VGTR was introduced, the government estimated that the new relief would cost in the region of £35m a year, and support smaller games developers. The scheme is now costing in excess of £100m a year, with close to half of all relief being claimed by just four companies.

Figures published by HMRC on all Video Games Tax Credit claims show just how large Rockstar’s share of the pot is. In 2018-19 there were 345 VGTR claims for a total of £103m.1 While these numbers may change, as companies have a period of one year to submit returns and another year to amend a claim, evidence from previous years suggest that the total claims are unlikely to change much from the published figures. The share of this pot going to Rockstar North, which was already significant, has increased from 18% in 2018 to 37% in 2019.

Of the 345 VGTR claims last year, 315 of them were for less than £1m, for a total of £30m. Rockstar North’s claim is worth more than the value of all of these 315 claims combined. There were 29 claims (excluding Rockstar) of over £1m, totalling £35.4m. And then there is Rockstar at £37.6m, which managed to claim more than 50% of the entire amount granted to games claiming more than £1m in relief. In fact, the stats tell us that Rockstar claimed at least five times the amount of its next biggest rival in 2019, making it by far the largest production in the UK that year.

We await to see whether any profit from this huge investment by the UK taxpayer makes its way back to the UK.

This research featured in Metro, The Sunday Telegraph, and was covered extensively in the video game press.

This article was amended on 20th January 2020 to reflect the fact that Rockstar had also gained certification of Red Dead Redemption 2 as being “culturally British”. 

Photo by Jenni Chen, license CC BY

1 Data taken from ‘Video Games Table 4.4’, from the August 2019 HMRC Publication ‘Creative Industries Statistics’, available here; https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/826824/August_2019_Commentary_Creative_Industries_Statistics.pdf

Netflix

No tax and chill: Netflix’s offshore millions

14th January 2020 by George Turner

Online video streaming company Netflix streamed up to $430m of profit from their international operations into tax havens in 2018.

“No Tax and Chill”, an analysis of the company’s accounts in the US, the Netherlands and UK shows the company is the latest in a growing list of digital giants that use a web of offshore companies to shift profit offshore and avoid tax.

In 2018, despite making $1.2 billion in worldwide profits and booking an estimated £860 million in revenue from its 10 million strong UK subscribers, the company paid no tax in the UK. On the contrary, the company received £924,000 back from the UK taxpayer in 2017/18 in tax credits.

Although where the profit from Netflix’s international operations end up remains a mystery, the company’s US accounts suggest that large amounts end up in tax havens.

  • The full report can be found here
  • A PDF version can be downloaded here

This research featured extensively in the UK and international press. In the UK, this research was featured in The Times, BBC News, and The Guardian among others.

The hangover after the double Irish

3rd January 2020 by Alex Dunnagan

On New Year’s Eve Google announced that it will be shutting down its double Irish tax avoidance scheme. This double Irish that has cost governments around the world billions in lost tax revenues since it was set up in 2004.

The scheme relied on putting intellectual property rights in Bermuda, and making huge payments to Google’s Bermuda company for the right to use that IP. Now Google is moving the intellectual property back to the United States, where it belongs.

However, the closure of the scheme is not likely to lead to any more tax revenues outside the United States and threatens to undermine efforts to reform the international tax system.

Our Director, George Turner, sets out what the closure of the scheme means for international tax reform and tax revenues in countries where Google operates in an article for the New Statesman published today. Click here to read the full story.

Photo by Mitchell Luo on Unsplash


TaxWatch

c/o M & A Solicitors

38 Coney Street

York

YO1 9ND

 

info@taxwatchuk.org

Copyright © 2023 TaxWatch

 

 

Follow us on X (Twitter)