Archive for tax avoidance

Vegan Tigers and Moral Corporations

Posted in Uncategorized with tags , , , on December 18, 2012 by Jonathan Kent

What is it with politicians?  All too often it’s all about them looking good and not at all about getting something done.

Take Margaret Hodge.  With bosses from Amazon, Starbucks and Google lined up before the Public Accounts Committee she lectures them on their failure to pay more tax and when they point out that they’re within the law she comes back with “We aren’t accusing you of being illegal; we are accusing you of being immoral.”

Excuse me?  Corporations aren’t immoral, they’re amoral.  That’s the way they’re constituted.  Their legal duty is to make profits to pay for dividends to shareholders.  If it doesn’t add to their revenue they’re not allowed to do good.

“I am very proud of the structure that we set up,” says Google boss Eric Schmidt. “We did it based on the incentives that the governments offered us to operate.”  He’s been given a set of rules to play by and he’s gamed them.  If it’s not very sporting it’s because it’s not sport, it’s business.

And while that little lecture raised Mrs Hodge’s profile it didn’t do anything much to address the underlying problem.

I’d have some sympathy for the politicians who would rather fire off a soundbite than actually take concrete action if they hadn’t had plenty of warning that this sort of rampant capitalism was coming down the track.

“I hope we shall…crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government to trial and bid defiance to the laws of our country,” wrote one former president of the United States.

‘Which president?’ you ask. ‘Clinton?  Carter? Kennedy maybe?’

A little further back.

‘How about one of the Roosevelts, FDR or even Teddy back in the day?  Don’t tell me was it Abe Lincoln?’

Nope.  It was Thomas Jefferson in a letter dated 1816.   Thomas Jefferson was no socialist.  He was quote convinced of the ability of private business to provide the goods that the people and the government needed better and cheaper than could the state. But he was equally convinced that business, unfettered, would try to run the show for its own benefit and not for the good of the nation.

So having had two centuries to wake up to the realities politicians like Mrs Hodge still appeal to corporations’ sense of morality.  That’s like asking a tiger to consider veganism.

Corporations are the way they are because requiring them to maximise profit was deemed to be the best way of ensuring they didn’t cheat their shareholders.  But while they don’t make moral choices, they do make cost benefit analyses.

If a new product stands to make a listed company £1Bn profit, but there’s a risk of it causing death or injury, the analysis will weigh potential profits against fines, compensation and the cost of reputational damage.  Governments can set fines, courts can determine compensation and campaigners can make a company’s reputation the issue and, between them, they can do their best to deter bad behaviour.

But better than surrounding a tiger with people wielding pointy sticks and hoping they don’t nod off, is building a really good, plain wall.

Companies are forever looking for the gaps in legislation through which they can slip a couple of billion quid and keep it out of the taxperson’s way.  The more complex the legislation, the more gaps go un-noticed by legislators, but not by sharp-eyed corporate-tax lawyers.  In general the simpler the rules the harder they are to game.

One thing global corporations cannot hide is global profits.  They have to declare those to shareholders.  They avoid tax through internal accounting so that their profits are made, for legal purposes, in low-tax jurisdictions.

So how’s this?  If Starbucks makes £10Bn profit worldwide and 10% of its turnover is in the UK the starting point for tax calculations should be 10% of its global profits, i.e. £1Bn.  The default minimum taxable profits would be set at a percentage of that £1Bn, say 50 or 66 per cent.  If a corporation wants to argue that it really isn’t making that much profit in the UK, and should pay less, then the onus should fall on the company to prove it.  Internal licensing and silly payments from one wholly owned subsidiary to another should be discounted.

I can hear the Tax Payers Alliance (an odd name for people who want to avoid paying tax) and the libertarian right protest; ‘you’ll drive businesses out of Britain!’

Really?  In just over a decade Starbucks has persuaded millions of people in the UK to pay £3 or more for a small bucket of not-great coffee, something we’d have called crazy in the days before all that coffee made us crazy.  If Starbucks go will people stop drinking the stuff?  Will we suddenly become a decaff-nation?  Or will some enterprising soul, seeing hundreds of empty coffee shops and hundreds of unemployed baristas, and more to the point a ready made market, not simply open new, better coffee shops and make themselves a small, or actually quite large, fortune.

So let’s quit the grandstanding, the soundbiting and the moralising and build us a good, simple legal wall.

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