If George Osborne really wants to find enough dosh to get Britain out of the mess he has created, our advice should be: Go after the tax-cheating multinational corporations.
It is about time these cross-border pirates were put in their place. And one place to be urgently put is paying tax on the profits made from operating businesses in countries outside their home base.
While no-one knows how exactly much money they are cheating us of, estimates vary from somewhere between £10bn and £20bn. Given that the Economist quotes a total worldwide figure of some $20 trillion lost in avoidance and evasion, that is probably about right. Former chancellor Denis (now Lord) Healey once said the difference between tax avoidance and evasion is the thickness of a prison wall.
My solution is a corporate withholding tax, such as the one that removes money from individuals who earn money in different countries by work or from investment. It is practised frequently and fearsomely by the US Internal Revenue Service.
Most forms involve the government of the country getting hold of the money and keeping it until the accounts are agreed and the tax situation resolved.
While agreements between EU countries only cover withholding taxes from individuals, an increasing number of major EU members are suffering losses of tax on profits made in their countries. It is a reasonably safe bet that most of the biggest would agree quickly to extend some form of withholding tax to these companies.
Few obstacles should prevent an extension of existing agreements to make booksellers, coffee purveyors and so-called social media networks part with their improper gains.
To tackle the situation effectively, international agreements are truly necessary, as the excellent motion at our Spring Conference made clear. Too many developing nations take the biggest hits.
But during the time it will take to bring such agreements into being, tens of billions of pounds will be lost to the UK exchequer. And many honest and essential British firms who do pay their taxes will be driven put out of business by the unfair competition, such as the cull of independent booksellers already underway.
We could easily and quickly implement a withholding tax. One way would be to impose a special tax based on sales, with money withheld equal to the average pre-tax profits applying in that sector.
It would be released once the overseas-based country has presented proper accounts and paid what s owed. Double taxation arrangements may be ignored, because there is no intention to permanently withhold the cash.
Such additional revenue could be used for all kinds of beneficial purposes that could fill an entire Liberal Democrat federal conference agenda.
A withholding tax is just, inexpensive and would boost domestic British business. It is long overdue.
* Jonathan Hunt is President of Camberwell & Peckham local party and chair of the Southwark Co-ordinating Committee. He is an elected Life Member of the NUJ, and a former parliamentary candidate.
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45 Comments
This article filled me with anger because of its ignorance and offensive, misdirected abuse to company directors. Let me tell you the problems with taxing multinational companies and what the solutions are.
Problem 1: If I set up an online book store, and someone in Egypt buys a book from me, should I have to file a tax return in Egypt? No, because it is only one book.
Problem 2: If I decided to buy shares in a US company, should that company then have to submit a tax return in the UK? No, because I might only buy one share.
Problem 3: If I’m a french citizen and I buy shares in a company listed on the FTSE 100, should I have to pay income tax in the UK? No, because we only tax UK nationals and 70% of the revenues from companies listed on the FTSE 100 come from outside of the UK anyway. In other words: the notion of a UK company is dead. The tax system is about 100 years out of date.
As a tax adviser I am a firm believer that multinational tax avoidance is the fault of the UK government, not of the companies. I also get angry because the people who seem to have the most influence on tax in the UK don’t seem to understand the system (politicians).
The only solutions are to either move taxes away from businesses and onto UK residents or to introduce a new sales tax. We cannot hope to tax other country’s residents because then they will just seek to tax our residents. The US tax system is not one to copy.
“We could easily and quickly implement a withholding tax. One way would be to impose a special tax based on sales, with money withheld equal to the average pre-tax profits applying in that sector.
It would be released once the overseas-based country has presented proper accounts and paid what s owed. Double taxation arrangements may be ignored, because there is no intention to permanently withhold the cash.”
Can you not see how impractical this would be? So if someone sells a pack of sweets in the UK, we should hold monies from them until they send us a tax return? And what will that tax return show? It won’t show the profit from that one pack of sweets.
We don’t need international co-operation to tackle this, and quite frankly, the likes of Bermuda aren’t going to co-operate with us anyway. We just need a more robust VAT or wealth taxes.
The US tax system just makes people give up their US passports and any prospect of coming back in the future. If you don’t, you sometimes have to carry on paying US tax even if you leave the country and regardless they make you fill in expensive tax returns which cost about £1000 each year, plus time. It is also expensive to collect and audit tax returns from people living abroad. The way to reform tax is to scrutinise it, not look what everyone else is doing.
I don’t mind the suggestions really, it’s just abusing people for following the tax system that they created.
I am grateful to Eddie for all three comments so far. But I rather fear I may not have explained what a corporate witholding tax might be. He is, if I may say so, a little obsessed with things as they are, which basically means personal witholding for his clients on a relatively small scale, and not as they might be.
As politicians, we are about change — to end injustice as in this case.
Firstly, about personal import or export of products. I sometimes buy clothes online from the US. Unhappily, but quite properly, I have to pay duty and VAT when it is delivered. That applies to the examples he mentions, except in EU countries where you can pay at the local rate.
Two types of businesses are most guilty of tax cheating. One is such companies with a base in the UK, which sell goods and services in the normal way. Starbucks and Costa sell identical cups of coffee.
The difference is that Costa pays corporate tax (at new improved 20 per cent rate) while Starbucks doesn’t, because it pays over the odds for items bought abroad. Much the same applies to Amazon. I would seek to have their profits witheld until it is decided, for example, that they are paying a commercial price for their supplies. If they are, then they have little to worry about.
The second model is companies that sell services or information from overseeas online, often funded by advertsining. Advertising by British companies, using British advertising agencies.
My proposals would require those advertisers to pay the money to the government, and it be witheld until such times as the correct amount of tax is decided.
It is fairly simple and would stop UK ventures going out of business because of unfair competition, and ensure we as UK taxpayers don’t have to pay quite so much because these companies fail to pay their fair whack.
I got the impression from the select committee evidence that they didn’t uncover a vast network of evasion of tax – in all it’s forms, only companies using the existing rules (and running rings around the politicians) to avoid paying too much tax. Nor did I see any real drill down into what these companies were actually doing or the effects of their arrangements on competition between: foreign HQ’d multinationals, UK HQ’d multinationals, UK companies.
Whilst the above might seem a little complacent, my real concern is that the UK doesn’t repeat past mistakes:
1. Bankers bonus’es: After all the shouting and demands from politicians, the Treasury received significantly lower tax receipts from the financial services sector…
2. EU Bailout terms for Cyprus: By trying to be clever, they have successfully raised the question of whether the EU really is open to international business.
Thanks for getting back, I’ll address the points you make in turn. First of all I’m not bothered about the effects a nominal withholding tax would have on any clients, I want to help the Lib Dems and that is why I’m commenting.
Yes politicians are about change but we should not be blaming companies for taking advantage of our own negligence. We should also not be giving up on understanding the tax system properly by criminalising tax planning or tax advice.
You say: “The difference is that Costa pays corporate tax (at new improved 20 per cent rate) while Starbucks doesn’t, because it pays over the odds for items bought abroad.”
However I say: we couldn’t even make Starbucks pay more tax besides through donation, so a withholding tax would just withhold it and then give it back to them.
You say: “The second model is companies that sell services or information from overseas online, often funded by advertising. Advertising by British companies, using British advertising agencies.”
I say: I think online businesses would find it pretty easy to advertise in the UK without going through advertising agencies. And again, it just withholds the tax anyway so doesn’t make them pay more.
Regards
How does taxing jobs and investment, or headquartering of businesses in the UK help grow our economy?
Surely far better to minimise corporate taxes to maximise our potential to be more competitive and attractive compared to our neighbours and rivals overseas?
A ‘withholding tax’ is simply an upfront payment, it does not increase the tax liability. The government takes an arbitrary amount of money, and the tax payer (or company) has to claim back a proportion after proving that no tax was due.
It may (and I only say may) be useful if the problem is tax evasion, rather than a poorly designed tax system. It would be an administrative nightmare, increasing costs for both government and the tax payer (company). It would destroy jobs and reduce the overall tax take. A complete non-starter not worthy of any serious consideration.
Andrew, I agree but the problem is when you have small local coffee shops paying 20% corporation tax and Starbucks 0%, same goes for book shops and Amazon, so I think something needs to be done about this. I would suggest either a net wealth tax, a new sales tax or perhaps balance sheet levies. We won’t scare wealth and business away if we keep having business friendly budgets.
Stephen, I agree,
Surely the answer to that problem Eddie Sammon is to charge the same low rate for everyone to give them all the same opportunity for success?
Yes Andrew, but that rate would be 0%. Corporation tax is out of date and I would be in favour of major reforms or even phasing it out, but we would need to replace the revenue with something; I don’t think we should be making unfunded cuts.
The scale of the problem, for problem it be, is enormous. It is difficult to prove evasion when yourloopholes are defended by the some of the finest criminal minds employed by the top legal and accountacy firms.
A withholding tax would place the onus on the tax cheats to prove its legality, rather than under-resourced tax officials having to prove it is illegal. And that makes it easier to close the loopholes before they can be used in court.
I think we can afford a bit of adminstrative cost given the tens of billions of pounds at stake over the next few years. Money that would in itself create many more jobs than the tax cheats provide.
The dogma that private companies should be allowed to get out of their obligations to society, forcing their own customers and employees to pay more tax in order that should not, is totally immoral and has no place in a Liberal Democrat party. Let us squeeze their ill-gotten gains until the pips squeek.
“A ‘withholding tax’ is simply an upfront payment, it does not increase the tax liability. The government takes an arbitrary amount of money, and the tax payer (or company) has to claim back a proportion after proving that no tax was due.”
But it will increase business costs as the “arbitrary amount of money” is money that belongs to the business and would normally be available for use by the business. Similarly without safeguards it could be many years (and court cases) before HMRC accept that no tax was due. Just think what effect this arrangement could have had on Vodafone…
No what is really being argued (in the Costa v. Starbucks instance) are two things, firstly, corporation tax seems to disadvantage the local business and secondly, the local business doesn’t have the same options for cross border charging as the multinational.
Similar issues are now coming to the fore about the different tax treatment of capital/equity investment verses loan/debt based investment.
“The scale of the problem, for problem it be, is enormous. ”
Jonathan where is your evidence, the select committee certainly didn’t drill down far enough to create indicative case studies.
“forcing their own customers and employees to pay more tax in order that should not”
It is the customer who pays ALL the tax that is collected from a company. It is irrelevant to the customer whether it is VAT, PAYE, NI, Corporation Tax etc., as it is all in the price…
I rest my case.
“the finest criminal minds employed by the top legal and accountacy firms. ”
Strong allegation. Presumably you have report them to their various regulatory bodies?
Roland: “Similar issues are now coming to the fore about the different tax treatment of capital/equity investment verses loan/debt based investment.”.
Yes this has been being discussed: debt interest is a business cost so it is tax deductible, dividends are not business costs, so they are not tax deductible. There is actually no argument about it, it is the way it should be. I just thought I would give you the arguments if anyone suggests playing around with this :).
Upfront payment it be, but hopefully much will stick when a determined government can close the loopholes, such as arbitrary priced ingredients, marketing licenses and other dodges.
Paying customers do contribute all the costs and revenues a company receives; but they have a right to expect that company to make a fair contribution to what used to be called their “social wage”; the sum made available to government to provide public services.
All we demand is that these immoral tax cheats intent on 21st-century pillage and plunder of our economy, and worse still those of poor developing countries, should make the same contributions to the society that buys their goods and services as do other companies trading here.
That is more likely to happen with a withholding tax than without.
@ Roland – “they didn’t uncover a vast network of evasion of tax – in all it’s forms, only companies using the existing rules (and running rings around the politicians) to avoid paying too much tax.”
Precisely, lib-dem’s need to stop trying to out guess the the market by creating ever more genius convolutions in the tax system, and appreciate that simple is good.
If its too high, lower it. After all we are civilised country that uses taxation to fund essential government services, not as an instrument of wealth distribution.
Spot on Jebi, I can’t stand all these tax reliefs in the system, just keep it simple. The government have got access to top accountants, so really they should change the law or shut up. I’m not a fan of UKIP but they said exactly this in a leaflet I received for the May elections, and it resonates with the voters far more than name calling.
The author appears to have no concept of the difference between tax avoidance and tax evasion – or blind disregard for it. Corporation tax is by far the smallest tax many of these companies pay in the UK, the biggest being paid through PAYE and VAT. What really baffles me though is that we expect corporations, the board of which are required in the company’s best interest, to voluntarily expose themselves to the largest tax burden? That is madness. I presume the author does not transfer any of his income to a spouse, doesn’t claim tax credits, has no deductions and also never paid into a pension scheme that reduced his NI obligations.
I am aware of the legal differences between avoidance and evasion. We, electors and consumers through Parliament, provide reasonable allowances to compensate trading companies for certain expenses they necessarily incur.
That we call avoidance, which is quite legal. What we are faced with on a global scale are unscrupulous companies that seek their own “avoidance” measures, invented by expensive lawyers and accountants. When do these measures not approved by Parliament become evasion?
THis is when it becomes a political issue and we need the political will to make changes.
Themain advantage of a withholding tax is that the onus of proof passes to the company to show it is legal, rather than for government to show it is illegal. Unfortunately, possession is nine points of these laws too.
And for the Tories in our midst, who side with the pirates and cheats rather than their fellow taxpayers, we should remimd them that traditional Liberal Democrat principles and policies rely on the tax system to bring about fair and just redistribution of income and capital.
It doesn’t have to be a jungle, unless you are the kind of animal that thrives in one.
Eddie Sammon “debt interest is a business cost so it is tax deductible, dividends are not business costs, so they are not tax deductible. There is actually no argument about it, it is the way it should be.”
I would agree, however I see that part of the shenanigans going on about the proposed privatisation of Dell (okay it’s a US company) has been on how the buy back should be structured. Here it has been suggested that the investment monies being used to fund the privatisation should be treated as loans rather than as a capital investment, because of different tax treatments. I’m not fully up to speed on the full details ie. who are the real beneficiaries and lossers so am watching with interest, because if it makes business sense we can be sure that others will follow.
re: “the finest criminal minds employed by the top legal and accountacy firms. ”
I was under the impression that the best tax advisers were ex-tax inspectors – hence the soundbite probably should be:
“the finest criminal minds, trained and honed by HMRC, now employed by the top legal and accountancy firms. ”
So perhaps the solution is for HMRC to change it’s incentives package for it’s finest thinkers …
“but they have a right to expect that company to make a fair contribution to what used to be called their “social wage””
What is a fair contribution?
From the arguments I’ve seen one of the potential schemes for helping companies to deliver on their UK “social wage” obligations is to raise the “minimum wage” to the “living wage”, which could also have a positive effect on the economy.
I’ve also previously suggested on LDV that the UK government should make the Falkland Islands a tax haven and use the revenues generated to fund the continuing military presence, thereby saving the Treasury and UK taxpayers money…
Hi Roland, I just don’t think the tax treatment makes much difference to the debt or equity question, and even if it does, that’s the way it should be.
Back to tax avoidance: last year I spotted a tax loophole so obvious I thought one of two things: either the government slipped it in there on purpose or two: the government were negligent. After I found it I emailed its details to HMRC, they said I was “probably right” and then I checked on the internet and every tax company under the sun had spotted it. So we have a big problem in the way our system works.
The Adam Smith Institute have said this in response to yesterday’s budget: ” Tax avoidance is a legal and legitimate response to the perverse incentives of a complex tax code created by politicians trying to exempt a pet project or special interest that they favour”.
Hence my frustrations.
“And for the Tories in our midst, who side with the pirates and cheats rather than their fellow taxpayers, we should remimd them”
An excellent display of the oft-proclaimed lib-dem revulsion for the tribal politics of the tories and labour. bravo.
Sorry I forgot to address Jonathan’s latest point on the withholding tax:
“The main advantage of a withholding tax is that the onus of proof passes to the company to show it is legal, rather than for government to show it is illegal.”
With this he is saying he wants a tax system that says guilty until proven innocent. We should not punish the vast majority because of the tax evading few.
“The Adam Smith Institute have said this in response to yesterday’s budget: ” Tax avoidance is a legal and legitimate response to the perverse incentives of a complex tax code created by politicians trying to exempt a pet project or special interest that they favour”. ”
Translation: Look after Number One. Anybody who wants to stop you must be perverse, complex, a politician, or a guy with a pet project.
So it’s OK to be selfish. In fact, tax is inherently evil! It is the moral duty of all crusading selfish NuConLibDem individuals to fight the tax man, bring him to his knees, bring down evil State power, and create the new millenium – perfect economic freedom, victory to the selfish, and the devil take the hindmost!
David, I want the rich to pay more tax, but the only fair way to do this is by changing the law. So I say let’s leave morality out of it and talk about ways to create a fairer tax system. I don’t think the withholding tax achieves this goal.
David (and Jonathan), I take it from your lines of reasoning that if as a result of the budget a household can afford to pay the full cost of child care they will be committing tax evasion by claiming the new tax-free child care vouchers?
Following this logic to it’s natural conclusion, do we regard people who don’t buy new luxury goods as tax evaders, since they are not contributing to HMRC’s VAT receipts?
are we tax avoiders for putting money in an ISA?
or buying paper books rather than ebooks, which are subject to VAT?
Eddie Sammon,
You say you are a tax adviser. You say that “I’m not bothered about the effects a nominal withholding tax would have on any clients, I want to help the Lib Dems and that is why I’m commenting. ” Then you argue against a withholding tax.
If you said you were a benefit claimant, and that in arguing against benefit cuts, you were quite oblivious to your personal circumstances but simply wanted to help the Lib Dems, do you think anyone would believe you for one moment?
Why do you think that a brazen aggressiveness and a standpoint against “offensive, misdirected abuse to company directors” should make you any more credible than the benefit claimant? Is it just a question of might is right?
What kind of “help” do you want to give the Lib Dems, precisely? The help to win votes, or the help to understand why they should adopt your views and move to the Right ? Are you a member? Did you join before the Clegg Coup, or after it?
“Are we tax avoiders for putting money in an ISA?” or claiming a benefit to which we are legally entitled?
Don’t be so silly. The fact that giving all you own to the poor and running your tax affairs like Starbucks are both legal does not mean that you cannot, to use a current phrase, put a cigarette paper between them.
There is a peculiar habit of thought which is prevalent amongst neocons and the far right. It is a sort of primitive worship of logic, akin to primitive worship of the sun. The neocon discovers to his/her surprise that he has been able to construct a logical proposition. This is such a rare event in his/her thought pattern that it is revered and treated as holy writ. In this case, the brilliant piece of logical discovery being made is that tax avoidance schemes are legal, just like a whole lot of other things like gifts to charities, and therefore they have an important characteristic in common. Wonderful! So brilliantly logical, in fact, that we need only worship the brilliance of the logic.
While we are concentrating our reverent gaze on this brilliance, we can quietly slip through a rather less logical corollary, which is that tax avoidance and giving money away should also be deemed morally equivalent and/or equally desirable. We neocons are so bright that we burn our own eyes out!
Eddie Sammon said:
“David, I want the rich to pay more tax, but the only fair way to do this is by changing the law.”
Oh yeah? You also said:
“As a tax adviser I am a firm believer that multinational tax avoidance is the fault of the UK government, not of the companies. … The only solutions are to either move taxes away from businesses and onto UK residents or to introduce a new sales tax.”
Well now, you’re right of course, if we scrapped taxes on business we would sure as heck put an end to them running tax avoidance schemes. Brilliantly logical (see my previous post)!
We could move taxes away from business and onto UK residents, sure. Do you mean wealth taxes, or 50%+ income tax rates, perchance? Perish the thought, I would confidently surmise. So that leaves taxes like VAT or benefit cuts, doesn’t it? A tad difficult to see how these effectively achieve your stated aim to get “the rich to pay more tax”.
David Allen there is no need for all the negative comments. I have made perfectly clear I want the rich to pay more tax but not via a withholding tax because I don’t believe it is fair. I don’t think being a tax adviser (although I’m having a break from it at the moment) should stop me from campaigning for fairer taxes, but at the same time I can only advise what the law says and not start bringing up ethics with clients.
You also question whether I really want to help the Lib Dems: yes I am a member, I only joined in November, I helped with Eastleigh and I am a Clegg supporter. Unfortunately I have found the party to be unwelcoming to new members, who I fear they suspect to be Clegg supporters. No faction owns the party and I am happy to campaign according to party line, which I thought would be good enough. The party is not a nice place to be at the moment and I hope this changes; it is certainly a put off to new members.
You also question whether I want more benefit cuts: I was against the benefits freeze so no I do not. I also thought the budget was too right wing and I didn’t like more pay cuts from public sector workers to pay for a 1% reduction in the corporate tax rate, as well as a housing scheme to help the rich buy second homes. So us Clegg supporters may not be as far to the right as you think.
I also supported Vince Cable’s call for more investment and I see the privatisation of the public sector as unnecessary. I have my own views and I joined the Lib Dems because I wanted to join a party and they were the closest to my views. I have got the impression that if a new member mentions one view that is “to the right” then they assume they are to the right on every issue, this is not true in my case.
Eddie Sammon,
OK – certainly the views you now express don’t sound so seriously out of place in the Lib Dems.
The one issue you haven’t addressed here is how you would go about getting the rich (and/or the “tax-cheating multinational corporations”) to pay more tax. If you don’t like Jonathan Hunt’s ideas about a withholding tax, it would help if you explained what you would prefer instead.
Hi David, I am glad we are now on a more friendly footing. I am in favour of the principle behind a net wealth tax because we need public services and it is fairest to get the richest to pay for them, I know it is hard to value some items, especially items valued offshore, but random net wealth audits on the richest in the country might not be such an invasion on civil liberties, or difficult to do. We could even potentially have wealth bands so people can estimate their wealth.
Having said this, I do not believe in “soaking the rich”, and I think they might even accept it if it was coincided with a reduction in other taxes on economic activity. I think the net wealth tax could be the final step in building a progressive tax system.
I also think Inheritance tax should be increased to 50% immediately and fewer exemptions plus potentially longer rules on gifts, this tax is far too easy to avoid. An accession tax is also interesting.
I would also be in favour of a more robust VAT. Yes this would increase some prices but many companies will also absorb or partially absorb the cost.
There are also plenty of tax reliefs for the rich I would like to see removed (I won’t go into detail here) and I also don’t believe in capital allowance reliefs for businesses. I believe only the depreciation of assets should be allowable against corporation tax, not the entire asset value in year 1.
Some way back, before the flak was directed at poor Eddie (or even rich Edie) we began to get into a twist about what withholding taxes meant. All taxpaying employees are subject to a form of withholding tax called PAYE. So are most individual shareholders, who have tax deducted from their divis.
Even as a self-employed person, a fund that pays me a pension annuity gets a coding notice of how much they should deduct. Individuals are not trused, although we get it back when we submit our returns. But we are not permitted to claim we can only work because of licenses issued in Luxenbourg, or because we have to buy very expensive raw materails in another low tax location.
Few companies are subject to withholding taxes. It is time they were. It is no dramatic or complicated exercise, unless they are illegally evading the tax they should be paying.
@Jonathan
I see you are obviously floundering over this, I suspect that you are discovering that actually delivering the goods is much harder than making tough sounding statements…
The withholding taxes you example, namely PAYE, dividend tax are based on the actual amount transacted and applied using universal rates and formula, ie. basic rate tax is 20% and is applied universally to earnings within a period above a predesignated threshold regardless of total earnings and industry sector.
Whereas the withholding tax you have exampled and hence seem to recommend is not and is in fact somewhat arbitrary and wide open to interpretation; being based on the “average pre-tax profits applying in that sector”.
About the only equivalent is the VAT Flat Rate Scheme (FRS), where the rate at which a business pays VAT to HMRC is predetermined by sector and trades (and is published). However, HMRC recognises that one size does not fit all businesses within a sector&trade group and hence: places strict limits on the turnover of businesses to which FRS applies, provides rules to determine which sector&trade group a business should be in if more than one should apply, and finally provides an option to opt out (of FRS) and maintain detailed VAT accounts.
Personally, until you and others who shout about there being a problem can actually provide some evidence of your accusations I with HRMC on this! – as the Public Accounts Committee noted “HMRC also expected everybody to pay their fair share of tax and saw its role as strictly enforcing the tax laws which it felt were strong enough to collect tax owing under both national and international tax systems and rebutted any suggestion that it had been lenient with big businesses.”
So Jonathan has now said: “Some way back, before the flak was directed at poor Eddie (or even rich Edie)”.
Personal finances have no part in political debate. I won’t even be dragged into it.
I am a chartered tax adviser; no strong political affiliations but would prefer the debate on tax to be well-informed. My comments are personal.
A withholding tax (wht) sounds simple but would be complex to operate, raise far less than you think it would, and almost certainly breach many of the UK’s Treaty obligations.
What is envisaged is a wht of an arbitrary percentage on business income. First problem: what percentage? who decides? what if the amount withheld is more than the profit (so the business goes bust)?
Second problem: under EU law, you can’t treat EU companies less favourably than UK ones. So either apply the wht to all UK company sales too (nightmare) or don’t apply it to sales by EU companies (loophole big enough to drive several coaches and horses through). Oh, and a sales tax (which this sounds as if it might be) is illegal under the EU Treaty, as we already have a sales tax (it’s called VAT).
Third problem: under the OECD Model Treaty, on which virtually all UK Double Tax Agreements (DTAs) are based, a business which trades in another country but does not have a “permanent establishment” (pe) there is not subject to tax in that country. So the UK would have to refund all the tax withheld from any business without a pe, even assuming that it can legitimately impose the tax in the first place.
Fourth problem: many of our trading partners would see this as an ideal opportunity to retaliate, and impose arbitrary wht on UK companies doing business overseas. Anyone who has ever tried to get a tax refund out of Italy, let alone Somalia or Nigeria, will appreciate that this is likely to kill UK exports stone dead.
The answer? Resource HMRC properly, so that it can challenge artificial arrangements or dubious transfer pricing. Engage properly with the OECD and G20 initiatives. Don’t expect there to be a “silver bullet” to provide a magic solution.