I’m not saying I agree with this, but just to explain what is happening.

Companies pay tax on profits. The idea being that if I make metal widget that I sell for £1 then just flat taxing me at (for example) 20% would mean I owe 20p tax.

Now if I bought the metal from my widget from a Sunderland refinery, and they charged me 50p for the metal to make the widget then my £1 widget is actually only worth 50p, and that 20p tax starts looking fairly high. If I paid someone 30p to sell it for me then that 20p tax puts the widget down to worthless and I’ll not bother making it, depriving the taxman his 20p.

The plan therefore is to tax profits. After paying the refinery, my 50p profit is taxed at the 20% making it less likely that I’ll get in a position where I don’t make it, unless it really is unprofitable.

The issue with this is that if I owned the refinery as well then there’s nothing to stop me selling the metal at £1 so effective profits are £0, or negative with employee costs. Tax obligations £0. Now move the refinery to a tax haven, or sell at cost it to my “warehouse supplier” based in the Caymans who then sell it to the widget factory for the maximum amount means I’ve exported all my profits. The product doesn’t ever have to go near the Caymans.

This is what I understand Starbucks does, with their Swiss division selling the beans at outrageous prices to make the coffee shops a loss.

What’s the solution? I assume taxing takings but that could destroy small businesses who have been doing this correctly or business that runs on fine margins.