mclarens 49mil fine for cheating is tax deductable

[bhall]

I'm far from worked up over it, but this does effectively nullify the penalty levied against them by the FIA. It's also a fine example of how tax laws around the world are very often needlessly skewed in favor of business interests.

[Blue fellow]

I am not familiar with corporate taxes, does anyone know about how much the tax deductible is saving them?

I can't see how this possibly could neutralize the penalty like some people say (not necessarily at this forum), they still have to pay 49 million pounds and lost out on 1st or 2nd WDC prize money, which from figures I've seen being thrown around for 2010, if 2007 is even remotely close, losing out on that money is a massive penalty in itself.

[snoop1050]

i thought a tax deduction of 49mil meant they have to pay 49mil less in taxes ?

HMRC are appealing the decision apparently

[wesley123]

I'm far from worked up over it, but this does effectively nullify the penalty levied against them by the FIA. It's also a fine example of how tax laws around the world are very often needlessly skewed in favor of business interests.

So the tax on the 49m fine is 49m?

I really dont understand how people can say it would nullify their punishment. It still costs them 49m, so how does it nullify this? As a matter of fact it would cost McLaren possibly more as they'd have to declare this, and they have to go over a whole process as this isnt something that happened last year.

Apart from that, since when are things like these not tax applicable? In F1 might be a penalty, in the regular world it is just an company booking 49m to another company.

C'mon, these are the basics of bussiness, and I dont understand the fuss about it

[snoop1050]

how does it cost them 49mil if its a 49mil tax write off? meaning they pay 49mil less in taxes?

[bhall]

[...]

I really dont understand how people can say it would nullify their punishment. It still costs them 49m, so how does it nullify this? As a matter of fact it would cost McLaren possibly more as they'd have to declare this, and they have to go over a whole process as this isnt something that happened last year.

[...]

Let's say McLaren has a hypothetical £50 million tax liability. They would have that liability with or without the FIA's fine; in other words, £50 million is coming out of McLaren's coffers no matter what. But, since the team has been afforded a deduction based upon the £49 million fine, McLaren's tax liability is effectively reduced to £1 million, and the FIA penalty is rendered moot, because, as I said, that money had to be spent regardless.

EDIT: The caveat is that deductions are sometimes limited, but I haven't any knowledge of British tax codes.

[Shrieker]

So what ? Renault had McLaren's info but it didn't even get investigated. The fine was all politics, way of Max dealing with Ron. He got paid back accordingly though didn't he ?

[bhall]

The motivation behind the FIA's penalty is immaterial here, as are the alleged transgressions of other teams. I think what matters is the fact that the U.K. has pretty much subsidized McLaren's penalty with taxpayer money.

[phillippe]

There is nothing wrong with structuring your operations in a legally permissible manner that minimizes tax liability. To this end, all multi national corporations have subsidiaries or special purpose vehicles in tax friendly jurisdictions. The article itself mentions it's completely legal. Of course, politicians have an interest in engaging in rhetoric and hysteria over such things. But we aren't politicians, are we?

By the same logic, all F1 drivers who are tax residents of Monte Carlo should be lynched!

theres a difference between tax avoidance and tax write offs...

maybe the next time a driver gets a fine they will get a tax write off aswell

Your sarcasm is well taken, but: (a) while there is obviously a difference between tax avoidance and tax deduction, the context of my statement was that both are legitimate means to minimize tax liability. Given this context, please explain what you meant when you made the rather patronizing observation that there is a difference between one and the other. Before you offhandedly shoot something off, be mindful, I'm a corporate finance lawyer who is quite conversant with taxation aspects as well (wierd to be on f1t, right? ), so even as I type, I have more questions than that can be answered from the internet (but I prefer to wait for an answer from you ); and (b) while a driver claiming a tax deduction on a fine paid by him sounds ridiculous to fans of the sport, from a taxation perspective, the sport he is engaged in is just a business activity from which he derives income and the fine is an expense incidental to earning this income. Hence, he should be (and most likely, would be, depending on the tax jurisdiction) able to claim this as a tax deduction.

[phillippe]

i thought a tax deduction of 49mil meant they have to pay 49mil less in taxes ?

HMRC are appealing the decision apparently

No, that's not the case as some of these journalists are making it out to be!! Tax is payable on profits not gross income. Which means, whatever you spent (x) to earn, or in connection with earning an income of (y) would be available as a deduction against x. So the tax would be payable only on x-y. The question is whether the 49 million would go towards y for McLaren's income that year. The loss to the exchequer would only be z% (being the rate of corporate tax in the UK) of x-y. So, for the exchequer to to suffer a loss of 49 million, the rate of corporate tax in the UK should be 100% and this too, assuming that McLaren would not have spent even 1 GBP out of this amount of 49 million elsewhere, had this penalty not been imposed!

[phillippe]

The motivation behind the FIA's penalty is immaterial here, as are the alleged transgressions of other teams. I think what matters is the fact that the U.K. has pretty much subsidized McLaren's penalty with taxpayer money.

Correct regarding irrelevance of FIA's motivations or violations by other teams. Incorrect, I'm afraid as far as UK taxpayers subsidizing Mclaren; please see my previous post.

Apologoes, I do not know how to split or use multiple quotes to respond.

[phillippe]

I'm far from worked up over it, but this does effectively nullify the penalty levied against them by the FIA. It's also a fine example of how tax laws around the world are very often needlessly skewed in favor of business interests.

So the tax on the 49m fine is 49m?

I really dont understand how people can say it would nullify their punishment. It still costs them 49m, so how does it nullify this? As a matter of fact it would cost McLaren possibly more as they'd have to declare this, and they have to go over a whole process as this isnt something that happened last year.

Apart from that, since when are things like these not tax applicable? In F1 might be a penalty, in the regular world it is just an company booking 49m to another company.

C'mon, these are the basics of bussiness, and I dont understand the fuss about it

So true on all counts!

[bhall]

[...]
Incorrect, I'm afraid as far as UK taxpayers subsidizing Mclaren; please see my previous post.
[...]

To use your example, it's more advantageous to pay taxes on £x - £50 million - £y than it is to be taxed on £x - £y. Were that not true, we wouldn't be talking about this right now.

What McLaren has done, and it's perfectly legit within the context of this discussion, is claim industrial espionage as a capital investment. Does that seem fair, especially given that someone must pay for that deduction at some point either directly or as a deficit?

It's a matter of ethics, not law. Though, I personally think both are questionable in this case.

[SeijaKessen]

[...]
Incorrect, I'm afraid as far as UK taxpayers subsidizing Mclaren; please see my previous post.
[...]

To use your example, it's more advantageous to pay taxes on £x - £50 million - £y than it is to be taxed on £x - £y. Were that not true, we wouldn't be talking about this right now.

What McLaren has done, and it's perfectly legit within the context of this discussion, is claim industrial espionage as a capital investment. Does that seem fair, especially given that someone must pay for that deduction at some point either directly or as a deficit?

It's a matter of ethics, not law. Though, I personally think both are questionable in this case.

The law is not always ethical, as we well know here in the US.

But, they essentially figured out a way to profit in some way from industrial espionage. Although, one has to think, in moments of lucid thought, Bernie approves of the underhanded dealings of Ron the Con.

[Just_a_fan]

The motivation behind the FIA's penalty is immaterial here, as are the alleged transgressions of other teams. I think what matters is the fact that the U.K. has pretty much subsidized McLaren's penalty with taxpayer money.

The motivation is not immaterial at all. If Max hadn't taken "$5million for the offense and $95million for Ron being a twat" (I think that was the quote) then McLaren probably wouldn't have bothered to do this. $5million would have been paid and forgotten about.

As a UK taxpayer, I don't mind helping out McLaren actually. They're a biggish employer and add a great deal to the economy by exporting (hopefully) lots of expensive sports cars. I'd rather spend a few million on them than tens (hundreds?) of billions wasted sorting out the banking crisis (started by our cousins across the pond) and the stupid wars in Iraq and Afghanistan (thanks again cousins) that have/are killing our troops just to keep some politicians feeling good about themselves (looking at you Mr Blair and your US neocon chums).

There are people hereabouts who are moaning about this not because they care about the British taxpayer but because they hate McLaren/Ron Dennis. Time to move on people, move on...