The usual suspects are out in the streets tearing their clothes at the news that Rolls Royce paid no corporation tax in the UK last year:
Rolls-Royce's annual financial statement, released in February, shows it made £1.4bn in pre-tax profit in 2012, an increase of 24% on 2011.OK, corporation tax is on profit; there's profit, why isn't there tax? Well, it seems that Rolls Royce did pay a fair amount of tax - just not in the UK:
According to its records, last year Rolls-Royce paid £218m in taxes abroad where it said it conducts 85% of its business.Indeed, Rolls Royce isn't selling many engines in the UK - we're not building many planes. The RAF Typhoon uses a Eurojet EJ200 which is based on a Rolls Royce design but produced by a consortium and (as far as I can tell) isn't in current production. The major airliner manufacturers are all based abroad. So it's not surprising that the sales of Rolls Royce engines are being booked abroad. The UK operation must be substantially loss-making in isolation - presumably they receive indirect revenue from the sales abroad, but not enough to generate any actual profit.
Someone needs to be given short shrift:
Chris Williamson, Labour MP for Derby North, said he had written to the chief executive of Rolls-Royce for more information.Well, because Rolls Royce employ a lot of people (many in Derby) and aren't selling engines in the UK, they're not making any profits here, are they? So, by your argument, the obligation to pay UK tax is negated.
He said: "We do need to get to the bottom of the story. All companies, irrespective of how many people they employ, have an obligation to pay tax if they are making profits here.
Now the tax paid on profits worldwide isn't huge - £218m tax /£1.4bn profit is 15%, so I was curious about the nitty gritty of the figures as I'd have naively expected something over 20%. So I looked at the breakdown of their 2012 results. It rather looks to me that their taxation was £318m not £218m. Oopsie, BBC journalists. That's a 22% tax fraction which looks far more reasonable.
It seems entirely unsurprising to me that Rolls Royce has paid no corporation tax in the UK. They have over 20,000 people in the UK; if we assume a low average wage of £25,000 and a tax + employee/employer NI take of about £6000 per person, that's £120m contribution to the Exchequer right there, in good years and bad. This is before any local taxes on RR's substantial commercial properties, and the knock-on effect on Derby's economy - I remember vividly having to pay an unconscionable amount for a dingy hotel room with a sagging bed in Derby, and not much less for a passable Indian meal for four, when meeting with some RR folks. Good times.
Rolls Royce are one of the few UK engineering firms who actually appear to know what they're doing; contrast them with the sharks at BAE Systems if you want to see how good they really are. RR build engines at the top of the line which really perform, don't seem to overrun much and, unlike BAE, repeatedly win in a truly competitive world market. If Chris Williamson doesn't like them conducting all their sales overseas, he should be lobbying the Government to buy more RR engines. Of course, even he can see that without an actual need for those engines, the tax take would be more than offset by the engine sticker price. In the meantime, the USA is probably reaping much of the tax take from RR. You could try asking for it to be repatriated, of course. Good luck with that.