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Tax move may bite
[September 30, 2014]

Tax move may bite


(Guardian (UK) Via Acquire Media NewsEdge) Politicians' promises about raising "billions of pounds" from clamping down on tax avoidance should be treated with scepticism. The bark is usually more impressive than the bite. Will the "Google tax", as promoted by George Osborne without using the term, evaporate in traditional fashion? Possibly. But the reason why this time might be different is that the wheezes deployed by the likes of Google are so glaring in their artificiality that, technically speaking, it ought to be easy to write effective anti-avoidance rules.



Google's argument has been that its 1,500 UK staff aren't really selling advertising space; instead, they are merely encouraging and facilitating a sale that takes place in Ireland.

Such verbal gymnastics defy common sense, even if HMRC has been satisfied. All that is really required here is a rule that says, in effect, that online sales in the UK (in Google's case, of advertising space) must be booked through a UK company that is liable for corporation tax. It can't be that hard.


Political will to cut through ancient international tax arrangements has been missing until now. That may be changing at G20 level. "Some technology companies go to extraordinary lengths to pay little or no tax here," said Osborne. "My message to those companies is clear: we will put a stop to it." Encouragingly, the briefing says a specific tax structure - the "double Irish" - is in the firing line.

If Osborne means what he says, the boast about raising "billions of pounds over the next parliament" is credible. Google's UK corporation tax charge was about pounds 20m last year. The tax is paid on profits not sales but the company tends to enjoy high profit margins wherever it operates - so paying less than 1% from UK revenues of $5.6bn (pounds 3.4bn) looks a nonsense.

Let's see reform actually happen before congratulating Osborne. But the basic analysis is correct: a serious attack on offshore profit diversion would raise serious money.

Balfour blues: Balfour Beatty blames "inconsistent operational delivery" for its troubles but the experience for shareholders is horribly consistent: the numbers are always worse than expected. The latest thumper - a pounds 75m shortfall - was the third profits warning this year and the fifth in the past two years. The construction firm's share price is back at 190p, a level last seen 11 years ago.

Nor can anybody, let alone the company, say the bad news ends there. The statement from Steve Marshall, Balfour's executive chairman, said "restoring consistency will take time". That was a long way from being a declaration that the company finally has a grip on the various cost over-runs in its UK business.

With management credibility even lower than the share price, the internal review will be followed by an external review from accountants KPMG. Marshall himself will quit once the perpetually-promised new chief executive arrives and a new chairman is appointed. In the circumstances, there was no alternative. The UK end of Balfour looks a shambles.

Shareholders may wish that they had bullied Marshall to pursue last month's takeover bid from Carillion, worth roughly 300p a share at the time. But would the suitor have been willing to combine on the same terms once it had fully inspected Balfour's contracts? We'll never know. As it is, Balfour's shareholders can console themselves that the pounds 1bn of value in the public-private portfolio ought to be solid. And the overseas operations, unaffected by the latest warning, are clearly still worth owning. Once the state of the UK operations becomes clearer, bidders are free to try their hand. That plot still looks likely.

Bank bonuses: Some senior UK bankers argue - in private, naturally - that the Bank of England is overdoing things by introducing a regime that could see bonuses clawed back seven years after their award in cases of misconduct. How can we recruit people if they don't know what they will be earning for more than a half a decade, they ask.

On cue, the Lloyds' rate-rigging case has arrived to illustrate why the grumbling should be ignored. The dodgy submissions at Lloyds, which included cheating the bank itself, date to 2006-09. Eight people have been fired and will forfeit a total of pounds 3m of awards - but those bonuses, note, relate to more recent times because the seven-year rule doesn't come into force until next year.

Threadneedle Street is right to insist on taking the long view: wrongdoing in banking can take ages to be exposed and the rules should reflect the fact. The banks will just have to live with a sensible reform.

(c) 2014 Guardian Newspapers Limited.

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