The fiscal reporting results are starting to feed through into the media from a number of the larger multinational companies who operate within the UK. Again the media is highlighting the amount of tax such companies pay in the UK and often make reference to UK sales or turnover figures. Does this paint the right picture? Does annual sales income drive the amount of Corporation Tax due?
The first thing that we need to remember here is that corporation tax is levied on profit only. A large turnover does not necessarily equate to a large profit. There’s often a considerable cost relating to achieving high levels of income.
So why does the media pay so much attention to this issue and place so much emphasis on sales income? I guess the focus on income is emotive to some extent as it does clearly demonstrate the size of operations within the UK and we all know that the likes of Amazon, Google and Starbucks clearly make a profit within the UK alone.
So what is the real issue here? Each of the companies named above have a reputation for using legal tax loopholes to reduce their taxable profits. Methods such as allocating a proportion of US head office costs to the UK operation allows multinationals to claim an expense that was incurred outside of the UK by creating a sometimes dubious link to the UK.
It is such methods that drive the media coverage as profits are effectively moved to lower tax countries. This is a legitimate reason, I guess, for public concern as another country benefits at the expense of the UK.
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