h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

Starbucks are reportedly making a contribution to the UK's tax coffers, after having successfully avoided paying it for a few years.

Why do people feel that large corporations are immoral by trying to avoid tax? Surely their responsibility is to their shareholders, who would like as large a profit as possible thank you very much?

In Norn Irn, there is a call for reducing the rate of corporation tax to 20%. How can that be right? If it's enticing business to move here, then will those who do so be seen to be behaving immorally, as they took steps to reduce their tax bill? And if that means that the return to the government coffers would be reduced (due to the lower rate) then surely that means business benefits at the expense of other citizens?

A corporation's responsibility is to stakeholders, which includes shareholders, but which also includes customers, staff, supply chain, environment and community. I think it was briefly fashionable to think of companies as responsible only to their shareholders, but it's a pretty bizarre view.

Corporations should pay their taxes because they should pay for the benefits that the state and civil society provide for them. Take an imaginary coffee chain called Barstucks, for example. The rule of law does (or at least should) provide fair conditions in which they can conduct their business - it protects their copyright and patents, it regulates advertising and marketing (and so preventing Stocca Coffee from libelling them), and it enforces their contracts with suppliers and with staff. The rule of law protects them from crime, whether petty (people leaving without paying, shoplifting) or organised (mafia style extortion), or corporate.

The state educates and trains their staff. It educates and trains their employees' children and families. The health service looks after their employees and their families' health so that Barstucks don't have to do it. Or so that they don't have to go without, and so come to work sick and less effective. The state subsidises corporations paying below the living wage through tax credits and other welfare payments - though whether this is the case for Barstucks employees I'm unable to say. And all this is even before you get on to how the state and civil society create the conditions for there to be customers with the money in their pocket to spend on coffee.

So... the state and civil society provides the conditions in which businesses can thrive and make a profit. So they should pay their share towards the upkeep of what enables them to exist in their current form.

The race to the bottom in terms of corporation tax is interesting - the assumption seems to be that by taxing less you can attract more business and increase the total tax take. I'm a bit sceptical about that. I'm also sceptical about tax rate being the only choice about where a corporation bases itself out of - availability of staff, quality of infrastructure, the rule of law, timezones, that kind of thing are all issues in terms of real company HQs. If it's just a plaque on a door in a tax haven, things are a bit different, of course.

You've analysed it quite well, Otto.

Availability of staff is an important point. Availability of qualified staff is even more important, especially for high tech companies. That means that there must be good schools in the surrounding community, not just for the prospective employees, but also for their children if they have any. Hiring teachers and building schools takes money which must be raised from taxes.

Granted, some people are able to send their children to private schools, but this is apt to be too expensive for any but the highest-paid corporate officers.

>> You've analysed it quite well, Otto. <<

Yes, brilliantly!
I've never seen the argument so well thought out
or clearly expressed. Many aspects had never
occurred to me before. Thanks Otto for putting
it all in perspective. That post should be put in
all the textbooks as well as the editorial pages
of every paper throughout the Capitalist whirled.

~jwf~

Well put by Otto.

Didn't Eire fanny around with corporation tax to attract big multinationals and create the "Celtic Tiger Economy"? And didn't that go tits up when the EU accession countries undercut Eire on wages?

I think the SNP are hoping the ability to set taxes at levels below England will attract business to an independent Scotland, retribution I suppose for English councils setting lower business rates in the 80s under Thatcher to poach businesses from Scotland.

Yes, well said Otto.

<>

Yeah, that was (and is) one reason why folk like Google have major European offices in Ireland.


<>

Nope, that was the banks.

Actually, I read that the single most important factor in the whole Celtic Tiger thingy was introducing women into the workplace. The % of the population in paid work went from something like 40% to 65% in around 20 years, taking Ireland from being rather poor to the same ballpark as the UK with it.

"Why do people feel that large corporations are immoral by trying to avoid tax? Surely their responsibility is to their shareholders, who would like as large a profit as possible thank you very much?"

There's an interesting implication in that statement that they aren't subject to morality, other than that responsibility to their shareholders. Parents have a responsibility to their children, too. But I've never heard anyone say 'they are parents. It's not their job to care about acting morally - their only job is to do the best they can for their children.' It seems to be almost an Al Capone view of ethics.

Post of the Year there for Otto I think.

Mol

If you look at a company as one unit, then yes it is selfish if they care merely about their own needs and not about that of others. We'd say that about a person, so why not a company?

That's part of my question : should we expect the same ethics and morality from a multi-national company as would apply to a person?

Having turned this over the past few days, I just find so many inconsistencies. If there IS a moral dimension, then what about all those companies who use tax havens in the Isle of Man, the Channel Islands, Luxembourg, the Caymans etc. Are they all going to be examined and shamed into paying more tax in the countries where they have stakeholders? Is Starbucks being pursued in all the countries in which it operates, or just the UK? Was it just anomalies in the UK's tax system which permitted them to pay such little tax here? Are those "loopholes" or mechanisms being addressed?

I don't think there should be 'morals' when it comes to taxation...

Paying taxes is a legal obligation, end of story... If a government wishes to attract companies from abroad it can write its tax code accordingly. If a government wishes to harvest more income from companies within its sphere of influence it can write its tax code accordingly.

The company's only obligations are to remain within the law of the land, I.e.: pay the tax it is required to pay, obey employment laws etc. ...and... make money for its shareholders.

If there's a loophole in the law then it's the government's responsibility to close that loophole and it's the company's responsiblity to exploit that loophole.

You could look at it from the other point of view... It is quite probable that many jobs in the UK depend on these loopholes... Would these company's be employing the same number of people in the UK if the companies were paying more taxes?

The other point to make is whilst the media are screaming about the lost corporation tax, has anyone calculated how much revenue these companies generate for the UK Government through customs duties, VAT & the income tax paid by their employees?

I think the view that corporations only have one duty, which is to make money for shareholders, was always a bizarre view even when it was a popular one. KB's right to say that we don't think parents have a duty only to their children, and another analogy is that no-one seriously thinks that a state's only duty is to its citizens. If you look at what corporations say about themselves these days, none of them (or virtually none of them) claim that their only duty is to their shareholders, and that the rest of the multiverse can go and take a flying leap.

I also think that the language of "loopholes" is wrong, as is this notion that companies are just paying the tax they're "required" to pay, and it's not their fault if it turns out that that's virtually nothing. What companies are doing is taking aggressive steps to set up artificial financial transactions and arrangements whose sole purpose is to dodge tax.

This isn't like you or I investing in an ISA where we don't pay tax on the interest on our savings, or buying childcare vouchers from our gross salary, or a company getting legitimate tax breaks on their R&D investments. All these are examples of legitimate use of tax advantages in the way that government foresaw to encourage behaviours/activities that it regards as positive.

What the likes of Barstucks are doing is setting up a bewildering network of companies, sub-companies, corporate structures, and financial instruments that shuffle money (often under the guise of royalty payments, loans, or artificially inflated or deflated purchase prices for goods/services) to siphon money offshore and dodge tax. It's an entirely artificial structure that exploits rules that are set up to be used for real payments and transactions done for genuine business reasons, not for artificial tax-dodging purposes. They can't claim that it's not their fault and just the consequence of the rules - it's something they are doing very deliberately and very aggressively, and that they could choose not to do, or do less.

As for the argument about tax revenue being generated by other means (VAT, NI, income tax etc), while that's undeniably true, it's also irrelevant. VAT and income tax are not paid by the company, they're paid by their employees and customers. NI I'm not sure about - that probably is paid for by employers, but it's nowhere near enough to cover the costs of the services that they rely upon.

It's also a massive red herring. Try a similar line with your mortgage provider or landlord and see how far it gets you - ("Never mind what I haven't paid you, what about all the money I have paid you!")

I think it's also a curious view that holds that corporations are somehow doing us a massive favour by existing and employing people. Some corporations are genuinely innovative and it's hard to see them being replaced, but there's not many of them. One of the advantages claimed for capitalism is that there's constant competition and innovation which drives down costs and drives up quality - people can form their own view on whether that's true, but if it is true, then no corporation is doing the rest of us a favour by simply existing - if they were to pack up and go, they'd merely be replaced by another one in the same business.

But the government isn't blameless in all this. What we need is a general anti-avoidance law that says that you can't use artificial structures that are set up just to dodge tax, and that those who do so will be fined heavily on top of interest and back taxes. And we need to stop letting off those who are caught cheating, as keeps happening.

"A corporation's responsibility is to stakeholders, which includes shareholders, but which also includes customers, staff, supply chain, environment and community"

Nope. Its responsibility is to its shareholders, end of. Given the way the economy works, many of its shareholders will be pension funds, so by discharging its responsibility to maximise shareholder value it's underpinning the care of the elderly. By paying the tax it's required to on its maximised profits, it's funding the rest of the community. By doing community outreach, it's improving its image, which leads to better sales, which means profits, which means shareholder return. Ultimately, it's all about the bottom line, even the fimbly feelgood stuff.

And a parent's responsibility IS entirely to their children. And if their children are to flourish in a civilised society, the parent should bring them up civilised, of course. But if your child has to live in a world where violence is a daily occurrence, it would be immoral to bring them up to turn the other cheek - that would lead only to increasing their pain.



Personally, I have no problem with tax avoidance. You've all been sold a lie here and you're depressingly falling for it. The meeja and the government are pointing the fingers and raising public ire towards the "evil" companies such as Starbucks and Vodaphone who are not paying their tax. David Cameron *PERSONALLY* attacked Jimmy Carr on the basis of his LEGAL tax arrangements. Why, at no stage, did anyone (Carr included) simply say "If these arrangements are immoral, why don't you just make them illegal?"

WHY is public anger being directed at the people legally working within the rules, instead of at the people who MAKE the rules?

We seem to have been lulled into thinking that the tax laws are carved in stone and unchangeable, and that companies in business to make a profit should, out of the goodness of their hearts, simply pay more tax than they have to, simply because of some fuzzy notion of what's "fair".

Well, I call bulls4it on that.

Consider: when an unemployed person buys a Mars Bar, 20% of what they pay for it is tax.

When I, a higher rate income tax payer, buy the same Mars Bar, I pay the same rate as them - 20%.

What I *don't* do is voluntarily pony up another 20% because to do so would be "right". Why would I? I'm legally required to pay 20% VAT, so that's what I pay. No more.

There's no VAT on newspapers, so guess what? I don't pay any. I don't, voluntarily, pay more tax than the law requires me to, and I can't imagine for a moment why anyone would.

If you've got a problem with tax loopholes, you've got a problem with THE GOVERNMENT. Not with a coffee shop or an online bookshop, and certainly not with a standup comedian.

Wake up.

One other thing. To anyone, ANYONE who moans about Jimmy Carr or Starbucks: have you got an ISA? Because if so, SHUT UP.

And one again, the straw targets are sent flying by a devastating volley of invective....

I hate to have to say this... But I agree with Hoo!

"If you've got a problem with tax loopholes, you've got a problem with THE GOVERNMENT. Not with a coffee shop or an online bookshop"

Well, no. Then you've got a problem with all three. If you have a problem with a government for not legislating against the behaviour of Company X, it follows that you must have a problem with the behaviour of Company X.

Yes, why can't you have a problem both with those who caused the weakness and those who exploited it?

Because they exist for different reasons. The governement is there to run the country (which is not really the same as raising a family.) It needs to work out how much money it needs to raise in order to provide the adequate care for its citizens, and what the most efficient way of doing that is. A bit of "fairness" is involved, but there's a heck of a lot of legislation which isn't fair. That's the way it goes.

A firm exists to make money, absolutely primary aim. And I don't think it's akin to raising a family. Yes it has a duty to pay its employees a reasonable wage, and to ensure they don't work in unsafe conditions. Yes it should pay its suppliers a fair price for its raw materials (Tesco, price paid to farmers for milk?). But all of these are secondary to its primary function. Why on earth would it not come up with schemes - no matter how false or convoluted - to keep its costs down? It does not exist as a philanthropic body.

All this debacle does is point out the flaws in a capitalist system.

"If you have a problem with a government for not legislating against the behaviour of Company X, it follows that you must have a problem with the behaviour of Company X."

You're putting the cart before the horse, though, aren't you? That's just silly.

Governments aren't supposed to legislate against particular companies' behaviours. They're supposed to produced a framework of tax law that means companies have to all pay a reasonable rate. They set the rules. The companies' ONLY obligation is to operate within those rules - and NOBODY has suggested that Amazon, Google, Starbucks or Jimmy Carr have done anything illegal. They played by the rules, and are being lambasted for it.

I have no problem with the behaviour of Company X. They played by the rules. You'd have to be quite dull-witted to blame them for that. I certainly wouldn't want anyone of that mentality in charge of my pension fund, for instance.

You might just as well complain bitterly about football players scoring goals from outside the penalty area. "The goalie never had a chance to see the shot coming!" you bleat. "It's not fair to be taking shots from that far out!" you whine. "That player scored when he WASN'T EVEN FACING TOWARDS THE GOAL!!! He kicked it OVER HIS HEAD!!! IT'S NOT FAAAAAAAAIIIIRRRRR!!!!"

Blaming the players for playing by the rules and winning, when you lack the resources to win the way they do, makes you come across like a fat, screeching primary school child moaning about getting picked last. Yes - it's not fair. Welcome to the real world. They're better at this game than you are, so they win. They did NOT cheat, though. There was no handball, no offside, no fouls. This is CRUCIAL.

If you don't want people winning that way, you have to make winning that way ILLEGAL. And only one group has the power to do that, and it's not the coffee shops, it's not the comedians, and it's not the internet search engines.