Luxembourg has become one of the key hubs in intricate and legal schemes that can put revenues out of reach of the British taxman. It now has the highest gross domestic product per head of population in the world.
Richard Murphy, of the Tax Justice Network, said: “There is no practical reason for routing money through this small city, but it is at the core of the web of financial flows into and out of Europe. The reason is financial engineering, so that companies can reduce the amount of tax paid. It is one of the biggest tax havens in the world.”
And, guess what, none of the things being done would fall foul of Ritchie’s new law, the anti avoidance principle.
Because all of the things done are specifically mentioned in law and thus don’t fall foul of it.
Microsoft’s operations in Luxembourg are disclosed in the small print of its online UK store, which states, “If you are purchasing electronic software downloads, you are contracting with Microsoft Luxembourg.”
Yup, EU law. Quite specifically, you can have a brass plate in any EU country from which to sell to all the rest. This is specifically allowed for in law and so is legal even under the Murph’s new law.
The company has a ground-floor office in a business park. Accounts reveal it had a turnover of £273m last year. The firm paid £2.6m in tax, but most of the revenue went to its European headquarters in Dublin in royalty payments.
Yup, EU law. We have a law that says that you cannot (note, cannot, it is illegal to even try) tax royalty payments from one EU company to another.
The accounts of the Irish company — Microsoft Ireland Operations Ltd (MIOL) — reveal it receives more than £1.7bn revenue from the UK. No UK corporation tax is paid on any of the money. Microsoft does have a marketing company in the UK that pays corporation tax.
Most of the UK revenues from MIOL are paid to another Irish company, Microsoft Ireland Research, which reported $4.3bn of profits for licensing rights in 2011, which would be subject to the Irish corporation tax rate of 12.5%.
Corporation tax is paid there. Hurrah!
Dividends from this company are paid to another Irish company, Round Island One, which in turn pays its dividends to Round Island Holdings, based in Bermuda.
Once corporation tax has been paid dividends aren’t taxable.
So for all Murphy’s bluster his new law wouldn’t actually stop the very examples he’s using to try and get the law passed.