Wednesday 16 January, 2013, 03:58 - BroadcastingThe UK public has been angered recently at the discovery that some high profile companies used various 'fiddles' to avoid paying tax. At a time when UK incomes have been squeezed, the idea that big name companies have not been contributing to the UK tax coffers left them hopping mad. The first company to be outed was Starbucks who, despite generating £400 million in revenues, paid less than three pence and a used muffin wrapper in corporation tax (corporation tax normally represents 20% of a company's profit).
Posted by Administrator
Posted by Administrator
Next up was Amazon whose sales in 2011 generated £3.35 billion yet who paid only £1.8 million in corporation tax. Even internet behemoth Google paid only £6 million in corporation tax against a turnover of £395 million.
These foreign companies largely argue that they pay tax elsewhere (presumably in countries where the tax burden is lower) and would end up being overcharged if they paid more in the UK. It should also not be forgotten that they generate VAT and pay income tax and national insurance for their employees, but nonetheless their tax affairs are more akin to the affairs in a bordello than those of honour.
But it seems that such activities are not just connected with foreign companies. Arqiva, the company responsible for transmitting all terrestrial television programmes across the UK (and many of the satellite programmes too) has, according to the Sunday Times, also been using some creative accounting to reduce its tax bill. The 'fiddle' they have employed is to get their parent companies (who are shareholders) to loan them money, but at a high interest rate, far above that which they would need to pay to take a loan at the bank. The repayments for these loans are taken from the accounts before dividends or the profit for tax purposes are calculated thus providing excellent returns to shareholders and also reducing Arqiva's corporation tax liability.
Arqiva's accounts show that shareholders took out £120m in 2012 and £106m in 2011 on loan interest charged at the stratospheric interest rate of 18%. Not quite Wonga.com interest rates but higher even than interest rates charged by car loan companies. As with Starbucks and Google, such fiddles are not illegal, but it could be argued that they are morally suspect, especially in the current financial climate. Arqiva are currently a monopoly provider and as such their fees are regulated. The regulated fees are based on their accounts, but such 'fiddles' would also impact the prices they charge. As their main customers include the BBC, UK citizens' licence fees are ending up in Arqiva's shareholders' pockets.
Arqiva would no doubt argue that as they do not make profits, they would not pay any corporation tax anyway. But they would be much closer to profitability if they weren't paying their owners for a loan at such extreme interest rates. What is certain is that their owners are benefiting from a much higher return on their investment than licence payers are!