Tuesday, 11 December 2012

Corporate Tax Avoidance

It's a burden on us all.
There's been a lot of fuss about corporate tax avoidance recently. I will, as ever, try to apply a bit of logic.

It's disgraceful that these companies aren't paying enough tax!
How do you define enough? Google, Starbucks and Amazon have all paid the amount of tax required by law. They have not done anything illegal.

Tax avoidance is a grey area where the law is concerned.
Completely and utterly wrong. In the UK, our judicial system is based on the Common Law - the law applies equally to everyone, but it also assumes that everything is legal unless specifically prohibited by law. Therefore, as there is no law against minimising your tax liability before you incur it, it is legal. There is no grey area - something is either legal or it isn't. Tax avoidance isn't.

It's morally wrong to engage in tax avoidance!
Really? That would be true, if you proceeded on the assumption that paying taxes is a moral thing to do. Why is it? Why is handing over your money under threat of force a good thing? It is morally neutral - giving money voluntarily instils a sense of morality. Taxes are not voluntary; they are coercive. Nobody has yet presented a cogent argument as to why tax is moral - they just base all their logic on that assertion. I challenge it.

Companies should pay their fair share.
'Fair' is a subjective term. What one person defines as fair may be completely different to what another person considers so. Who should decide what is a fair share of tax? The answer, in a democratic society, is, of course, Parliament. And Parliament does, indeed, decide - it lays down the law. And, as discussed, Google, Starbucks and Amazon have not broken it.

The other consideration is that companies do not actually pay tax. The Government levies taxes against company accounts, but the companies do not actually pay the tax. The effect of the tax is passed on - either in the form of higher prices for their customers, or reduced wages for their employees. The incidence of the tax is on the people who can least afford to pay it.

Mine. Nobody else's.
Avoiding tax deprives the State of funds!
That it does, and rightly so, given that it funds itself entirely by stealing off other people. Money does not belong to the State, it belongs to the people, who have obtained it in exchange for their labour. If the State owns our money, then it owns our labour. And that makes us slaves.

I am not a slave. I am a free man. My labour, and my money, are my own. Any attempt by any organisation to expropriate it is a breach of my individual liberty. I am prepared to tolerate minor breaches of this liberty if it serves the greater aim of guaranteeing the larger part of my liberty. Hence why the nation-state is a necessary evil, for funding things like defence, security, preserving the rule of law, allowing free movement along Queen's highway etc. The State taking money off me to give it to charities that I do not value, to pay for opera tickets I do not buy, to subsidise railways I do not use, and to fund services I do not benefit from, is utterly wrong.

The State is an unfortunate necessity, that has a horrible propensity to waste money that does not belong to it. As such, it should be kept as small as possible, to prevent it from doing too much damage.

Companies should have principles too!
Companies are not real. Companies are legal fictions which exist only on paper. They are an imaginary concept which have been invented to allow people to speculate with their money (obtained in exchange for their labour) in an attempt to make more money. They do not have brains, souls, morals or principles. They are vacuous non-entities which only exist in our minds. How on earth can something which does not really exist have principles?

What they do have is a fiduciary duty to their shareholders. That means they are obliged to maximise the amount of money their shareholders get. Given that the money that shareholders get is profit, and Corporation Tax reduces the amount of profit, it is hardly surprising that companies go out of their way to reduce their tax liabilities. Indeed, the company management could be sued by their shareholders if they did not.

But some of these companies should have paid more tax - they've done enough business in the UK!
Corporation Tax in the UK is levied on profits, not turnover. It doesn't matter how much money has crossed through a company's bank account - if it has ridiculously high operating costs, then these are offset against tax. Starbucks has made substantial sales in the UK, but has high operating costs, and therefore a narrow profit margin. As a result, it hasn't paid much in Corporation Tax.

Next, whether profits are assessable in a particular jurisdiction or not is entirely dependent on where a company is domiciled. Amazon have been routing a lot of their sales through their Luxembourg subsidiary. They are based in Luxembourg, but by virtue of our membership of the European Economic Community (the common market), they are permitted to transact business in the UK. However, any profits arising from that are taxed as if the business took place in Luxembourg, because that's where they are based. This is a standard feature of virtually every double-taxation treaty on the planet.

Well, that's wrong - the business they do in the UK should be taxed in the UK.
Fine - I take it that you will support our immediate withdrawal from the EU, EEC, the imposition of capital controls and the restriction of overseas entities from trading? No? Thought not.

Well, how can we get them to pay more tax in the UK, then?
Very simply. The reason that many companies have Luxembourg subsidiaries is because Luxembourg's Corporation Tax rate is 5%. Ours is 21%. Our rate of Corporation Tax, even taking into account our other competitiveness factors, is too high, and it is driving companies away. The answer is to cut Corporation Tax.

This will send a sign that Britain is open for business, and will attract new investment in the country. More companies will want to be domiciled here, especially as it gives them access to a very wide and lucrative market. As a result of more companies being domiciled here, the revenue raised by Corporation Tax will likely rise. It's that old Laffer Curve again, and currently, we're on the wrong side of it.

People should boycott these companies for their tax avoidance!
It's a free society - people can boycott them if they want. If you want to foster a culture of complete and utter subservience to the State, focusing more and more power into the hands of politicians, then that's your bag - but just remember, societies get the governments they deserve. Which, over the last 20 years or so, is a rather damning indictment of our society, don't you think?

Personally, I have done all my Christmas shopping with Amazon and eBay, quite happy in the knowledge that they are both based in Luxembourg. I will continue to use Google to provide the majority of my internet services, because I am pleased that they are standing up to a bunch of socialist bullies with nothing better to do with their time than to harp on jealously about the amount of money that other people earn, rather than getting off their arses and doing it themselves.

Even the Church is rallying against these companies!
Mistakenly, I would argue. Whilst I do not doubt the motives of the clergymen criticising the actions of these companies, they, like others, cannot present a cogent argument as to why paying tax is moral. Jesus taught us to love and care for one another, not to abrogate that responsibility to Caesar. On the subject of money, Jesus said an awful lot. On the subject of taxes, he said very little, which leads me to the conclusion that he, too, saw the State as a necessary evil, but Society as a greater function of human good. The two are often conflated, but they are not the same.