TAXING US MULTI-NATIONALS (PART 1)
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TAXING US MULTI-NATIONALS (PART 1)
I Googled myself the other day. It’s not something that I do very often but I
was looking for something. When the list
came up, I was surprised to see myself described as “long-standing tax avoider,
Robert Maas”. I don’t recollect ever
having sought to avoid tax although I do admit that, when I am in America, I do
occasionally look at the local sales tax rates and sometimes buy things where
they are lowest. I suppose that is tax
avoidance.
Intrigued, I clicked through and found
myself in the middle of an old article on the Richard Murphy website. Richard is the scourge of what he perceives
to be the tax avoider. I don’t know what
I did to him to merit that label.
Admittedly I rarely agree with his views, as I do not embrace his
personal definition of tax avoidance. I
have only met him once as far as I can recollect. I did have a brief correspondence with him a
few years back when I questioned how he advised his own clients and he told me
that there is a huge difference between tax planning and tax avoidance, but I
chose to terminate the correspondence without learning what that difference is.
But I digress. Richard’s website told me that he has a new
book out. “Over Here and Undertaxed:
Multinationals, Tax Avoidance and You”.
It’s all about those three wicked tax avoiders Amazon, Google and
Starbucks. I was intrigued by the irony
that, my having started from Google, Richard directed me to Amazon to buy his
book (no, I didn’t rush out for a Starbucks coffee to sit down and read
it). I duly paid my £1.83 to Amazon in
Luxembourg and settled down to read it.
Although I disagree with most of the content, it flows well and I
thought it value for money. Whether I
would have paid, say, £2.50 to enable Amazon to pay more tax is another
question. I was also intrigued that Richard
chose as his publisher US multi-national Random House. I suspect that neither Random House nor
Amazon will pay UK tax in its share of my £1.83, so only the bit (if any) that
goes to Richard will pay UK tax. I think
it generous of Amazon to stock a book dedicated to slagging off Amazon.
But back to Richard’s book. I found it very facile – although it is
obviously not aimed at tax specialists.
It is very heavy on Richard’s personal involvement in challenging tax
avoidance; he seems to be behind, or involved in, an awful lot of the public
criticism of tax avoidance. It also of
course reflects Richard’s views of facts, which do not always conform with how
others perceive them. For example,
Chapter 1 tells me that before 2008 almost no one (other than Richard and a few
others) cared about tax avoidance, but in 2011 a story about Google’s tax was
published in the UK which made people realise “that there were large companies
… not paying their fair shares in taxes.
And what that meant was that ordinary people were going to have to pay
more”. This of course begs some very
large questions. What is a company’s
“fair share” in taxes? How much is
“lost” by tax avoidance? Are ordinary
people really going to have to pay more?
Take “fair share”. What is the fair share of tax to be paid in
the UK on Richard’s book? It was
presumably written in the UK, published by a large US company, and sold to me
by a Luxembourg website that I clicked through to from my house in the UK. Which country should fairly get the tax on my
£1.83 (or rather on whatever profit has been made out of my £1.83)? Or should it be divided amongst the US,
Luxembourg and the UK, and if so, how? The tax rate in the US is 35%, that in
Luxembourg is 28.8% (effective) (I suspect actually that Amazon Europe are
based there because it has a low VAT rate rather than a low corporate tax rate)
and it is 23% in the UK. Richard appears
to think that it is fair for the UK government to get the tax. It is not clear to me why. Richard defines tax avoidance as “claiming
the tax benefit provided by Parliament without suffering the anticipated
economic consequences”. I have written
elsewhere about Google, Amazon and Starbucks (Taxation, February 2013). None of them seem to me to be avoiding UK
tax, even under Richard’s definition.
Google has chosen to base its European
operations in Ireland. It is surely
entitled to do so. Ireland has chosen to
finance its economy with a low corporate tax rate and a high VAT rate. Most studies of tax, for example the Mead
Report in 1978, and the Mirlees Review in 2010, recommend such a balance as
sales taxes are easier to collect and taxing consumption does not inhibit growth
as much as taxing income. The UK itself
has reduced its corporate tax rate significantly in recent years under both the
Labour and Coalition governments, specifically to seek to attract multinational
corporations to create jobs in the UK rather than somewhere else. Google choosing to base itself in Ireland rather
than in France or Germany or the UK (it surely can’t be expected to have
companies everywhere and forgo the commercial economies arising from a single
European base) seems to me no different to my choosing to buy my shirts in
Wisconsin rather than neighbouring Illinois because the sales tax is
lower. The UK has entered into a treaty
with Ireland (last updated in 1976) that says that the UK will not tax an Irish
company on sales in the UK unless they are made through a permanent
establishment in the UK and, in return, Ireland will not tax, say, John Lewis
on sales in Ireland unless they are made through a permanent establishment
(such as a shop) in Ireland. That treaty
had to be approved by Parliament.
Accordingly an Irish company paying Irish tax on internet sales to
people in the UK, with the UK not seeking to tax such sales, is precisely the
“anticipated economic consequences” that Parliament intended. Of course there are some MPs who did not
approve of that intention (or possibly who have since changed their minds) just
as there are some citizens (like Richard) who do not do so (and, of course, a
number who the media have stirred up to disapprove without understanding that
this is the result intended by Parliament).
It is a fundamental concept of Parliamentary democracy that laws are
made by majority decisions. There are
always bound to be some people who disagree with the majority view.
Tax treaties are an important tool in fostering
international trade. If the whole world
had the same corporate tax rate, so multinationals had no incentive to shop
around for locations, they would still be important – and Google would probably
still base its European operations in Ireland because of the ready availability
there of a skilled IT literate labour force, which may well be more important
to Google than the tax rate.
One of the things that Richard
castigates governments for is that the UK has recently adopted the US practice
of seeking to tax international groups of companies only on profits generated
in the UK and leaving, say, the Australian government to tax profits made in
Australia. Previously our “controlled
foreign company” legislation required a UK company with an Australian subsidiary
to pay UK tax on the Australian profits (subject to a large number of
exemptions) with the UK government giving credit for the Australian tax paid by
the subsidiary. It largely pretended
that the group was a single company, based in the UK solely because the parent
happened to be here. Now we still tax
overseas profits where we think they are generated in a particular place in
order to avoid tax, but have a simplified system that saves a lot of work and
accepts that an Australian company should be paying its taxes in Australia and
what taxes are imposed in Australia should be of no concern to the UK simply
because the company’s shareholder is a UK company.
Richard and other campaigners talk a lot
about fairness. That seems a lot fairer
to me than the previous concept that a company (or rather the group of which it
is a member) should end up paying the higher of the tax in its home country and
the tax in the country in which the group parent is based.
Similarly with Amazon. The deal with the US is that the US should
tax Amazon and the UK should tax John Lewis on internet sales made in the other
country. That seems a lot fairer to me
than either that the two countries should both try to tax Amazon on the same profits
or that Amazon should be caught up in the middle of a long squabble between the
two as to which should do so. Both
countries have treaties with Luxembourg which similarly say that Luxembourg should
tax a Luxembourg company on internet sales rather than the UK or US doing
so. That seems equally fair to me, but
if it is perceived to be unfair, it is surely unfair to US taxpayers, not UK
taxpayers, because Amazon Luxembourg is part of a US group, not a UK one.
Of course many people think that the
concept of imposing tax where a company is based is inappropriate in the
internet age. I do myself. But it is surely for governments to revisit
their treaties, not for a tiny number of ill-informed campaigners to seek to
bully multinationals into paying tax in a country where there is little logic
in doing so. That is actually what is
happening. David Cameron has asked the
Organisation for Economic and Commercial Development (OECD) to look at the
issue, and it is doing so. Richard
thinks – rightly – that it will take many years for governments to reach
agreement on this issue and in the interim the UK should simply ignore the
bi-lateral treaties that it has entered into with other countries. I doubt many informed citizens share that
view.
The issue is not as simple as it is made
out to be. UK law says that if I go into
a shop, pick up an item off the shelf, and proffer it to the cashier together
with the right amount of money, I am offering to buy it. The cashier is perfectly entitled to say to
me that the price on the label is incorrect and the shop is prepared to sell it
to me only at a higher price. The legal
concept is that I do not have a contract to buy until the shop accepts my
offer. It follows that if I write a
letter to a company in America offering to buy something from it, I do not have
a contract until the US company accepts that offer. So where is my contract made? It is surely in the US where it was entered
into by virtue of being accepted there.
Why should it be different if I make the offer to buy by hitting a key
on my computer in the UK and Amazon’s computer in Luxembourg accepts my offer
and asks for my credit card details? To
source that sale in the UK because that is where my computer happens to be is
not simply a tax issue; it undermines international contract law. And what if I had bought Richard’s book on my
i-pad when I visit Chicago, as I do every year.
I think that Richard would still want to source the sale in the UK
because that is where I live. On that
logic, when I buy a beer at Rockbottom Brewery (my favourite Chicago Brew-pub)
I ought to be saying, “I live in the UK so I shouldn’t pay Illinois sales tax
as I won’t get any benefit from such tax, charge me UK VAT instead”. I suspect that if I try that, I won’t be sold
many beers! Or perhaps I will, as the
pub might take the 20% from me rather than the 9.25% that the Illinois
government want, but then the UK government won’t see that money.
I want to challenge a lot of other
things that Richard says in his book, but don’t have time to write a book
myself, so I will stop there for now and revisit his subject in a later blog.
posted by CBW at 5:02 am
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