Business

Tax 'should be paid where products sold'

Starbucks store Image copyright Getty Images
Image caption In 2012 Starbucks was accused of paying minimal UK corporation tax

Multinational companies should pay tax on their profits based on where their products are sold, not where they are made, a professor is to suggest.

In the Royal Economic Society's annual lecture on Tuesday, Professor Rachel Griffith will argue corporate tax should be charged like VAT.

"A preferable way to tax corporate income would be to tax profits at the destination of sales", she will argue.

Ms Griffith is professor of economics at Manchester University.

"We currently try to tax corporate profits at the location where value is created, under international agreements formed in the 1980s.

"Implementation of this system is increasingly difficult in the presence of intangible and internationally mobile assets," she is expected to say.

The fact that a company's assets often didn't have a physical presence - such as patents, trademarks and brands - made it difficult to calculate what a firm should pay and where, she believes.

"The most valuable ideas are often those that can be combined with other ideas to create even greater value.

"Tying the value created in this way to a physical location - and thus to a tax jurisdiction - can be very difficult," an advance version of her speech said.

Image copyright Getty Images
Image caption Facebook paid £4,327 in corporation tax in the UK in 2014

Prof Griffith's lecture comes a month after social networking giant Facebook revealed it paid £4,327 in corporation tax in the UK in 2014, less than the £5,392.80 in income tax and national insurance contributions someone on the average UK salary of £26,500 would pay.

Several multinational corporations are being investigated by the European Commission over the tax arrangements they have with EU member states.

Amazon, Fiat Chrysler, and Starbucks are among several companies subject to the investigation and the Commission has said it could widen its probe.

The investigation came after Starbucks was revealed to have paid £8.6m in UK corporation tax in the 14 years between 1998 and 2012, despite making more than £3bn of UK sales in the same period.

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