Should companies be proud of tax avoidance? That's capitalism, folks.
The tax avoidance story-mill still won’t go away. Today, reports show Google chairman Eric Schmidt is “very proud” of the company’s tax structure, which (amongst other things) allowed the firm to siphon $9.8bn (£6.07bn) of revenues from international subsidiaries into Bermuda last year in order to halve its tax bill. The UK is Google’s second biggest market, paying just £6m in UK corporation tax on a turnover of $4.1bn.
But why shouldn’t Schmidt be proud of this? If his remit as Chairman is to make as much lovely money for shareholders as possible, then surely he is doing his job excellently. He says as much himself: “It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”
The main sticking point over the tax avoidance issue is not legality; tax avoidance is perfectly legal and no one is suggesting that any of the recently fingered companies have done anything that is not perfectly within all relevant tax law. The problem is that people, fuelled by politicians trying to balance budgets, are trying to apply a moralistic reasoning to something that is, by its very nature, amoral.
Capitalism requires that you make as much money as possible for your shareholders. This means you are taking money from your competitors- that’s not immoral, that’s just business. The same argument applies to tax avoidance. Not only does tax avoidance increase the bottom line profit by dint of the tax not paid, it potentially allows the business to work at lower margins and undercut competitors. And if you don’t avoid tax, but your competitors do, then they will undercut you. It’s dog eat dog and always has been.
Take Starbucks as an example. They were entirely unrepentant when first challenged following the Reuters report. They claimed they had paid all taxes they were legally required to do (true); they also cited how much PAYE they paid as an example of a tax cost (false, most PAYE is deducted from the employees at no cost to the business). Are they now saying they will pay a sum of tax because they didn’t realise what they were doing? Have they suddenly found a moral conscience? No! They are doing it because the public have reacted badly and their profits were falling. Would Starbucks have agreed to pay a penny in tax if business had carried on as normal? Rearrange the following words: chance snowball’s hell in.
And that is the only role of morality in tax avoidance- if you, as a consumer, don’t like the what the tax avoiding companies are doing, then don’t use them, because the only way you will get them to take notice is by hitting them where it hurts, in the profits. For most companies (and there are some who take a more ethical approach, Like John Lewis who are now reaping the benefits), it is purely a numbers game- at the point when avoiding tax costs them more in lost sales than it saves them, they will stop doing it.
So it’s up to you guys. Do you care enough about tax avoidance to boycott certain companies? Are you gobsmacked that people think companies maximising profits is wrong? Let us know below.