Corporation Tax: Government hires contractor based in British Virgin Islands
by Tim Worstall | 3rd, July 2013
YOU’VE got to hand it to the campaigners: they can get newspapers to print the most godawful rubbish these days. The latest complaint seems to be that a company is paying all the tax that is due. What Horrors!
Downing Street faces more flak over company tax arrangements after it emerged that a major Government contractor is funnelling profits into an offshore haven.
Telereal Trillium has a £3.2 billion contract to manage buildings such as job centres for the Department for Work and Pensions. It also manages property used by the DVLA.
While the company paid full UK corporation tax last year, it funnelled £163 million of its post-tax profits in the form of share dividends into a parent company based in the British Virgin Islands where there is a zero rate of income and corporation tax.
Note that they’re saying that the company has paid full and complete corporation tax before sending those dividends off to the British Virgin Islands.
At which point we need to note a couple of things about the way the tax system works. No, not the way people fiddle with it, but the basic principles upon which it is built.
The UK tax system does not tax foreigners on the dividends they receive from UK companies. This is because we rather like it when foreigners send their money into Britain to build factories and so on. So what the tax rate on dividends in the BVI are has no meaning at all for the UK tax system: it’s simply an irrelevance.
Secondly, the corporate tax rate on those dividends is indeed zero in the BVI. But so would it be if they were going to a UK company. No, really: once the profits have paid that corporation tax it makes absolutely no difference at all whether they do to a UK company or a BVI one: no more tax is payable.
Finally, if the people who own that BVI company bring the money back into the UK then they’ll be taxed on that income just like they would be on any other income from anywhere else in the world: including the UK.
So, this story is: company pays full tax. And isn’t that just a horrible thing for a company to do? Actually pay all of the tax demanded of it?
Tim Worstall
Posted: 3rd, July 2013 | In: Money Comment
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