HM Revenue & Customs: Who is liable for Corporation Tax Official UK Revenue Dept.
LLP pays no tax like US S-Corp
In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act 2000 (in Great Britain) and theLimited Liability Partnerships Act (Northern Ireland) 2002 in Northern Ireland. A UK limited liability partnership is a corporate body – that is to say, it has a continuing legal existence independent of its members, as compared to aPartnership which may (in England and Wales, does not) have a legal existence dependent upon its membership.
A UK LLP’s members have a collective (“Joint”) responsibility, to the extent that they may agree in an “LLP agreement”, but no individual (“several”) responsibility for each other’s actions. As with a limited company or acorporation, members in an LLP cannot, in the absence of fraud or wrongful trading, lose more than they invest.
In relation to tax, however, a UK LLP is similar to a partnership, namely, it is tax-transparent, that is to say it pays no UK corporation tax or capital gains tax. Instead, LLP income and/or gains are distributed gross to partners as self-employed persons, rather than as PAYE employees. It is a unique entity in its synthesis of collective and individual rights and responsibilities and its flexibility — there is in fact no requirement for the LLP agreement even to be in writing because simple partnership-based regulations apply by way of default provisions.
Guide to UK Tax for foreign investors
The Isle of Man and Jersey have hit back at accusations that they facilitate tax evasion and avoidance ahead of next week’s G8 summit.
The offshore jurisdictions, frequently described as tax havens, suggest recent pressure from world leaders is politically motivated.
They also argue that they are more open about their tax regimes than they are given credit for.
G8 leaders will hold their latest summit in Northern Ireland on Monday.
Ways of combating aggressive tax avoidance and mass tax evasion are expected to be high on the agenda of leaders including UK Prime Minister David Cameron, US President Barack Obama and Germany’s Chancellor Angela Merkel.
Up to now the focus of the world’s media has been on big countries pointing their fingers at small islands – accusing them of helping big corporations and wealthy individuals avoid paying tax.
But now the leaders of some of those offshore financial centres suggest that the world’s largest economies should get their own tax house in order first.
“Politicians love scapegoats,” said the Isle of Man’s Chief Minister Allan Bell. “And the G8 agenda is being politically driven because there’s always someone else to point a finger at.”
We just want a level playing field when it comes to tax transparency”
Allan BellIsle of Man Chief Minister
There is no universally accepted definition of a tax haven, but international bodies cite low tax rates and secretive financial systems as the major characteristics.
Most companies pay no corporation tax in the Isle of Man, but the island has recently signed tax information sharing agreements with the UK, US and European countries.
Mr Bell said that when it comes to tracing who actually owns some of the world’s more secretive bank accounts, the Isle of Man is a decade ahead of other larger countries especially the UK and the US.
He also accused President Obama of double standards, given that the US federal government has no direct control over the tax policies of individual states.
That is especially relevant when it comes to the tiny US state of Delaware which has only 900,000 citizens but over a million registered companies – most of which are “brass plate” entities controlled by very private entities or individuals.
“We just want a level playing field when it comes to tax transparency,” said Mr Bell.
“It’s totally selfish from the USA because they want to track down their own tax evaders overseas, without looking at Delaware.”
The channel island of Jersey also charges zero corporation tax for foreign-owned companies.
The company disclosed the investigation in a filing with US financial regulators. It was alleged that the company recorded sales of more than £7.6bn in Britain over the past three years without paying corporation tax.
Amazon does not disclose how much tax it pays in Britain.
However, its main UK subsidiary, Amazon.co.uk, is regarded as a “service company” rather than a retailer.
That means that the British company provides services to a parent company based in Luxembourg, where the tax rate is lower, the Guardian said.
HM Revenues & Customs declined to comment on whether it was examining Amazon. The report added that the investigation could be a routine audit.
The UK is home to a larger number of multinationals than might otherwise be expected based on the size of the UK economy alone. This is through a fortuitous mix of history, the pre-eminence of the London financial markets, investments in infrastructure and a stable regulatory environment. These UK headquartered multinationals may generate huge revenues from their worldwide operations but have only small or sometimes no UK based operating activities.
It is important to understand that the headline sales number (sometimes also referred to as turnover or gross revenues) is not equivalent to net profits or net income, as this figure does not take into account all the business expenses incurred to generate those sales revenues. Taxable profits are gross sales or revenues, less business expenses, plus or minus any adjustments required or permitted by the tax law (see Concept 9). In the case of a UK permanent establishment of an overseas company, the profits are based on amounts attributable to that business activity in the UK.
Where a UK company has established a business presence in another country (either as a subsidiary or as a branch/ permanent establishment) then, subject to certain exceptions, the taxable profits of those companies earned in other countries will not generally be subject to UK taxation (see Concept 6).
Britain’s largest water company has been accused of “ripping off the taxpayer” after it emerged it paid no corporation tax last year despite making profits over half a billion pounds.
Thames Water put up customer bills by 6.7 per cent, awarded its chief executive a £274,000 bonus and made profits of £549 million on a turn-over of £1.8bn.
But it succeeded in cutting its tax bill to zero and was handed a £5m credit from the Treasury by writing off investments in infrastructure against the amount it was due to pay the Government.
The company’s accounts also show it paid £328.2 million interest on “intercompany loans” via a Cayman Islands funding vehicle to pay external bondholders such as pension funds.
While legal, the head of industry regulator Ofwat warned that the large profits and complex tax arrangements of some water companies were “morally questionable”.
HM Revenue and Customs should “fully investigate” Google after information from whistleblowers “undermined” the firm’s defence of its tax arrangements, a committee of MPs has said.
Google says that advertising sales take place in low-tax Ireland, not the UK.
But the Public Accounts Committee (PAC) said it had been told by ex-employees of the tech giant that UK-based staff are engaged in selling.
The company generated $18bn (£11.5bn) in revenue from the UK between 2006 and 2011 and paid just $16m (£10m) in UK corporate taxes in the same period.
Companies pay corporation tax on their profits, not their sales. But the current debate revolves around the apparent ability of multinationals to move their profits from country to country with little obvious relationship to where the sales are generated.