Multinationals pay low corporation tax

The
corporation tax on profits need to be paid for any kind of business in the UK.
According to the GOV.UK, the term “profits” here means trading profits,
investments, and selling assets for more than the original product cost. For
the companies which are not based in the UK, they only need to pay the tax on
their profits earned from UK activities. Over the years, people started
debating about the low corporation tax payment of the multinational enterprises
in the UK. There are so many investigations about this case and become the
headline of news. One stated as “Google, Amazon, eBay, Facebook and Apple
avoided 1 billion pounds of UK tax” according to the Mirror.com. (Nick, 2016).
Also, the practical studies confirmed that the global companies paid 32-57% less
than the tax of the domestic enterprises. (Egger, Eggert and Winner, 2010). But
how could they avoid or paid such a low corporation tax, and is it fair for the
government or the country, that nobody has the correct answer.

            When the multinational corporations
(MNCs) want to start the Foreign Direct Investment (FDI) business in other
countries, they might choose the best based on the Organisational advantage,
Location advantage and Internationalisation advantage (OLI theory). According
to the report of FDI Magazine from Financial Times, even though the GDP of the
country is the most important determining factor to attract inward investment,
the corporation tax rates are also indirectly connected with inward investment
based on the sample of 46 countries. The report also suggested that making
changes to corporation tax rates might be the impact on the Foreign Direct
Investments. Economic professions also found out that “lower corporation tax
rates” is also one of the attractiveness for foreign direct investment. The UK
has been stated in the report of 2017 World Investment as the second largest
country which has the most foreign investments all over the world by the UNCTAD
(United Nations Conference on Trade and Development). The UK economy still have
the key strengths: The GBP is still strong currency, London is the Europe’s
main financial capital despite the recent Brexit condition. In the UK, it takes
only 13 days to set up a company and it is much less than the other countries
in Europe with the average of 32 days. When the multinationals are established
their business in the UK, they will be treated like the domestic enterprises by
the government even in the EU. The British Government strongly defend the
rights of any registered company in the UK (Santander, 2017). Also, low
taxation in the UK makes the investor-friendly to itself. In the year of 2008,
the corporation tax rate in the UK is 30 per cent but it keeps falling down to
19 per cent in 2018, and will be 17 per cent in 2020. As a result, the UK government
has received 56 billion pounds of cooperation tax in the financial year of
2017. This is 21 per cent increasing compared to the financial year of 2016. However,
the multinationals nowadays keep shifting their profits to the low tax
countries to take advantage of different tax rules of different countries.
(Gavin and Vanessa, Financial Times 2017). It can be also described as “legally
avoiding the corporation taxes”. According to the Independent news, Mr. Jeremy
Corbyn who is the UK’s labour leader said that in 5 years (2011 to 2015), the
UK economy lost more than 12.8 billion pounds because of the tax avoidance (Lizzy,
2017).  It looks like UK economy was lost
2.2 billion pounds per year because of the multinationals trying to reduce
their corporation tax bill. In 2017, the HMRC found out that the multinationals
avoided the corporate tax around 5.8 billion pounds which is 50 per cent
increasing over forecasts. Multinationals from different firms are all shifting
their profits to other low tax countries. According to the news from the
Guardian, Facebook which is one of the giant social media companies paid only
5.1 million pounds for corporation tax in the UK last year despite their
revenues has raised 4 times compare to last two years ago. They paid only 5.1
million pounds while their revenue in the UK is nearly 842.4 million pounds in
the year of 2016. This is slightly increased compared to 2014, when they were
publicly criticised for paying only 4.3 million pounds of corporation tax. The
GAP, which is the fashion giant around the world, is also paying almost no
corporation tax in the UK. Since 2011 to 2016, the GAP is not paying almost no
corporation tax even though they had sales of more than 1 billion pounds in the
UK. They are keep shuffling their profits between the UK-based company and
their main company located in San Francisco. The GAP is operating their
business in the UK named GPS Ltd. It has to pay a multimillion pounds of
“royalty fee” annually to the Netherland Company with its “statutory seat” in
Amsterdam. And they created the offices in London with the name “GAP
(Netherlands) BV, which is how they avoid to pay the corporation tax in the UK.
This is kind of legal tax avoidance in the UK (Simon, INDEPENDENT NEWS, 2017). According
to the Guardian news, the giant online retailer, AMAZON only paid 15 million
pounds in the UK despite their revenues of sales in the UK which is around 48
billion pounds in 2016.  The amazon’s full-time
employees are getting at least 1000-pound worth of shares annually not in cash
immediately but after one to three years later. The employees are being allowed
to receive up to 3600 pounds annually from their company shares every year by
HMRC rules. And that makes Amazon free from some tax charges. So, Amazon becomes
more valuable in the market means the less tax is paid by them. (Simon, BBC,
2017). According to the news from the guardian, another giant online retailer,
eBay also paying only 1.1 million pounds in 2015 despite their revenues of 1.1
billion pounds which they told to the US investors. They just shift all of the
advertising fees from British sellers to an overseas company by using the
corporate structure. The employees also confirmed that the company based in the
UK did not receive any advertising fees paid by the UK sellers which is for
advertising goods on eBay online web page (Simon Bowers, 2016). Relating with
these cases, there are a bunch of people who are started debating that this is
fair or unfair. The rate of shaming multinationals in the UK are keep higher
and higher, mentioned as the news headline almost every day. It is really hard
to tell that these corporation tax avoiding or low corporation tax paid cases
are fair or not. While taking a look at from the companies’ side, they offered jobs
for thousands of people from the local UK, taking care of their families, giving
them the full salaries, bonus, and other benefits which are really important and
good from CSR point of view. The multinationals need to give the rental fees
and other expenses to the government every year, which might cost them a lot. But,
while taking a look from the citizens in the UK, the corporation tax means a
lot to them. Every companies need to pay the fair share of the taxes so that
the government can spend in other sub-directories like in hospitals, upgrading
the roads and so on. Overall this seems a bit unfair to the UK government because
even though they reduced the tax rates, taking care and defend the rights of
the multinationals in EU, they really do not get enough taxes back. In the year
of 2013, the CFC which stands for Controlled Foreign Company rule changes
happened in the United Kingdom. This rule allowed the multinational corporations
located in the UK to reduce their corporation tax bill by shifting their taxable
profits to the other countries offshore. And the HMRC released the statement that
the multinationals avoided paying 5.8 billion pounds in the year of 2016. But the
losses happened by the changing to the CFC rule are not mentioned in this
statement. And there is something really important fort the UK government which
is the case of “Brexit” going to happen in March 29, 2019. If the “Brexit” is
really going to be happened, the UK will no longer be with EU and the investors
will be afraid of the new rules and regulations. The UK government will need to
be considered about this and otherwise, keep reducing the corporation tax may
be the best solution to keep the investors. The internet giant company, Google
agreed to pay back the 160 million pounds to the UK government announced in 2016
and another social media giant Facebook agreed to pay back the taxes and also will
invest more in the UK in the future (Kevin, The guardian, 2016). This means
that CFC rule is still kind of the best attraction to the investors. Moreover,
the corporation tax will be reduced to 17 per cent in the year of 2020 according
to the UK government which means that they are not likely to change the current
tax system until the Brexit happened. Currently, EU is trying to investigate
this CFC problems whether the UK government is helping to the multinationals
avoiding the tax or not until while the UK is under EU (Jennifer, 2017).

            As a conclusion, every country
need to get a fair share of the corporation tax from the multinational
companies. If the government is not getting enough the tax from the companies, it
will be affected to the countries’ GDP, also no more funds for other developing
activities, the currency will not be stable and so on. Even though there is a
CFC rule and the government is still reducing the corporation tax rate, the
multinationals are still trying not to pay corporation tax is really unfair. Because
of the shaming multinationals rate are keep higher in the UK, they are now taking
action of repaying the tax back and is the good news for the UK. In the other
hand, because of the Brexit problem, the UK future business is not really
stable so that the government might not be thinking about to get the higher
corporation tax in the next 2 to 5 years.