How big multinationals pay less tax than your local trades firm: the whole toolkit in plain English

The short version: a profitable UK company pays corporation tax of up to 25%. Several of the world's largest companies pay far less on their profits, and they do it legally. The difference is not effort or cleverness. It is access to a set of tools that only exist at a scale you will probably never operate at. This page walks through the whole toolkit, one mechanism at a time.

A limited-company electrician turning around £100,000 profit pays an all-in effective tax rate of about 26.9%. One of the world's largest online retailers shows, in its filed accounts, an effective tax rate of about 13.5% in 2024. That is roughly double the rate the giant pays on its profits.

Two things we will not fudge, and they apply to every comparison on this site. First, the 26.9% is an all-in rate that includes the tax on drawing the money out of the company; on corporation tax alone the small firm is nearer 23%, still well above the giant, just not double. Second, the multinational's 13.5% is a global rate across everywhere it operates, not a UK-only figure. We show both sides every time, because a comparison that hides its own caveats is just a slogan.

None of what follows is illegal. It is the rules working exactly as written.

The toolkit: six tools, one outcome

Profit gets moved from where it is earned to where it is taxed least. The tools differ; the result is the same. Here is each one, with a link to the full breakdown.

• Transfer pricing. Every big group trades with itself, and it sets the prices for those internal trades. Tilt those prices and profit slides from a high-tax country to a low-tax one. A large share of world trade, on common estimates between a third and roughly half, happens inside multinational groups and is priced this way. Read more
• Profit shifting and BEPS. The umbrella term for the whole game. The OECD estimates it costs governments USD 100 to 240 billion a year, which is 4 to 10% of all corporate tax collected worldwide, measured at 2014 levels. Read more
• IP and royalties. Patents, brands and software have no fixed home. Park them in a low-tax entity, charge every operating company a royalty to use them, and profit follows the royalty cheque out of the high-tax country. This is the engine of the modern problem. Read more
• Debt and interest. Interest on a loan is tax-deductible. Load a high-tax subsidiary with group debt, charge it interest paid to a low-tax lender, and the deduction strips out the profit. Read more
• Conduit jurisdictions. Some countries are not the final destination for the money, just a useful stop on the way, because their tax treaties let income pass through almost untaxed. Five of them route roughly 47% of the world's corporate investment coming out of tax havens. Read more

Why it is legal, and who you should be cross with

A common reaction is to be angry at the companies. They are following the law. The structures are disclosed to tax authorities, signed off by some of the largest accountancy firms in the world, and in most cases survive challenge because they comply with the letter of the rules. Where they have been struck down, it is because a specific structure crossed a specific line, and those cases are documented public record (we name only those).

So who is in the dock here? The law. The international tax system was built for a world of factories and shipping containers, where it was obvious which country earned the profit. It was not built for a world where a company's most valuable asset is a line of code that can be legally rehomed by a board resolution. The mechanisms below are the predictable result.

The one tool you cannot use

Run through the list and notice what every tool has in common. Transfer pricing needs subsidiaries in more than one country. IP routing needs an offshore holding company and the legal fees to build it. Conduit structures need treaty networks and advisers in three jurisdictions at once. A profitable group above EUR 750 million in global revenue gets the full kit and the documentation team to run it. A firm turning over a few hundred thousand pounds gets none of it. The barrier is not the law. It is the cost of entry.