As we know, the NAO released a report part of which pointed out (the actual report was about the efficiency of the taxman in collecting the money) that a lot of large companies pay little or no corporation tax. There’s a nice piece explaining this:

"After the likes of BP and HSBC there is a very long tail of
    much smaller companies," says Bill Dodwell, head of tax policy
    at Deloitte. "If you look at the companies pushing for
    promotion to the FTSE 250, you come across names like Melrose
    Resources, Law Debenture and Kingston Communications. These
    companies are not very big. Take Melrose Resources – it makes
    pre-tax profits of about £5.6m. When you think this through,
    it’s no surprise that so many of the 700 biggest companies in
    the UK pay less than £10m tax. Many of them don’t make £10m profits."

That seems entirely sensible: I’d not really thought about it that way, that there aren’t actually that many companies that do have profits of hundreds of millions to be taxed.

"One of the industries that pays little or no tax is the car
    industry," says Patrick Stevens, tax partner at Ernst &
    Young. "One reason for that is that car industries have very
    big investment programmes. In the car industry, you have got to
    build a dirty great factory. Building factories brings tax
    allowances, which governments put there in the past to encourage
    people to build things like car factories and stimulate
    manufacturing. The tax allowances come to you quicker than you would
    write the value of those factories off in the accounts."

This would apply to pretty much any form of manufacturing of course.

Moves to wipe out pension fund deficits have also slashed their
    tax bills. Accounting rules mean that cash sums paid into pension
    funds can be offset against tax. In the year the NAO report refers
    to, billions of pounds were pumped into pension funds by FTSE companies.

J Sainsbury, the supermarket group, paid £110m into its pension
    fund in 2005/6 which resulted in it receiving a tax credit of £3m.
    Last year, it paid £240m into the fund, leading to credits of £9m.

Again, it all seems entirely sensible. Certainly, so far there’s nothing that we would even call tax avoidance, let alone evasion.

But the biggest mitigating factor is more obvious. UK corporation
    tax is only paid on the profits made in the UK. These days,
    Britain’s biggest multinationals make most of their money
    overseas.

Aha….and….

Take British American Tobacco. Last year, it made profits of
    £2.6bn and paid £716m in corporation taxes. But none of that went
    into the Treasury’s coffers because BAT’s comparatively
    small business in the UK lost money.

But that logic also works in reverse: profits made by the UK
    subsidiaries of American, German or Japanese companies are taxed in
    Blighty. It is worth noting that overall UK corporation tax revenues
    have soared by close to 50 per cent in the past four years and are
    projected to hit £50bn in the current financial year. Clearly
    someone is paying tax.

So we might have this rather odd situation that, the largest 700 companies are paying very little UK corporation tax because they are paying foreign corporation taxes…while there are chunks of revenue coming from the foreign companies operations in the UK….it’s just that we don’t count them amongst the 700 because they’re not British.

There’s one more spanner in the works here, something which might (will?) have a much greater effect in the future. There’s an EU law (the Bolkestein Directive maybe?) about company taxation. Rather than where the economic activity takes place being the determinant of where profit taxes are paid, it’s where the head office of the SE (Societee Europeienne?…equal to a PLC) is based. Under this it would be entirely legal for BP, for example, to have the head office in Liechtenstein (yes, any EU or EEA country) and the only corporation tax would be that levied there. Or Estonia, where that on retained profits is zero.

I’ve mentioned this before and I’m really not sure that directors who don’t move in order to take advantage of it might not be in breach of their fiduciary duty to shareholders. Being able to pay 0% corporation tax on all profits made in the EU certainly seems worth the cost of having board meetings and a brass plate in Tallinn.