We’ve been hearing a lot of talk about tax avoidance for quite a while now, from brass-plating to sweetheart deals. And with Eric Schmidt, the boss of chronic tax-avoiders Google calling the debate perplexing, here is a brief glossary of what some of the terms in the tax-avoidance lexicon actually mean.
Tax avoidance: this is a perfectly legal although ethically dubious way of minimizing your tax bill, using some of the methods below. Whereas tax evasion is an illegal version of tax avoidance which can result in large fines and imprisonment.
Brass-plating is where companies register the company in one country usually a tax haven such as Luxembourg or the Cayman Islands or a country with lower corporation tax such as Ireland despite doing most of their business in another country. With online businesses and multinationals such as Google and Amazon, they push this to the very limits of legality.
Transfer pricing is the process by which multinational firms cook the books (legally in most cases) so that profits end up in low-tax regions while the losses are registered to high-tax countries. A great example is Google which part of the tax-avoidance game haven’t they mastered? Which claims to make very little profit in the UK, but lots in the low-tax Bermuda. Funny, that!
Sweetheart deals are where large companies such as Goldman Sachs and Vodafone although strangely not Google come to a gentleman’s agreement with HMRC over how much tax they ought to pay. This figure is usually much lower than one would hope for companies of their size. The sweetheart in question was often Dave Hartnett, the former head of HMRC who ought to consider having sweetheart deal etched onto his tombstone, so instrumental was he in their profligacy.