Should companies be proud of tax avoidance? That's capitalism, folks.

12 December 2012

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.


TOPICS:   Technology   Tax


  • Inspector G.
    But at what point should a company be considered British and therefore be paying tax to the British government. At one end of the scale, if I order from an American website no one would argue that they should be paying VAT or any tax to the British government, the import duty should cover that. The next stage, eBay, being an an American company, operating out of Luxembourg. Should they be paying UK tax? They have a website and charge customers in £ sterling but does that make them British? At the other end of the scale is your corner shop that's owned and run by the owner. The amount of tax one should pay is defined by law, the 'line' needs to be drawn before you can accuse someone of hiding profits offshore.
  • Kevin
    Theres also the point that people might not realise. Your pension is probably funded by the ownership of a large number of shares. If the shares go down in value, so does the pot of money for you to live on in the future. If peiople don't like it then tell your MP, and get them to keep badgering those in power to change things. They are the only ones that can change anything in getting rid of these 100% legal loopholes. The PAYE thing is just part of the issue, if they weren't employing people then that's also no NI contributions, no pension contributions, no trickle down or pump priming for tertiary businesses supporting their businesses and of course x number of people without a job atall. If you are slagging off businesses then you should be slagging off everyone that has an ISA (which is surprisingly high) as that is exactly the same thing (legal way of not paying more tax than you need to), it's just the scale that is different.
  • Mustapha S.
    Turnover and corp tax are not related. How much PROFIT did google show in the UK? I pay myself a min wage and the rest by dividends to lessen tax, and no longer having to pay off student loan. Why should any individual or company pay more tax than they legally have to?!
  • Confused
    I could be (probably am) wrong, but isn't PAYE paid by both employee and employer?
  • Marky M.
    @ Confused You might be thinking of National Insurance, where both employer and employee make a payment. PAYE is paid by the company *on behalf of* the individual, but it comes from the individual's salary.
  • Kelmer
    @kevin I'm sorry but how is avoiding Corporation Tax and having a ISA the same thing? Paying less tax on savings interest that have already been tax at income and diverting billions out of the country are nowhere near they same.
  • Grammar N.
    @kelmer - if you put the same savings in a normal savings account you will be taxed on the income earned through interest. If you put it in an ISA you won't. You are therefore doing something to avoid paying tax, it's not corporation tax (obviously) and it's not the same scale (obviously) but the principle of tax avoidance is the same.
  • Alexis
    Only an idiot pays more tax than they legally have to. It's a PR war. There is a reason the government put stories about chasing individuals with Swiss bank accounts, or patronising crap about not paying the plumber in cash. It takes our eye off the real corruption that goes on. A minor and temporary PR blip for a coffee co suits the government just fine.
  • Gabriella
    At the end of the day if a company is legally avoiding paying tax in a country then it is down to government to put a stop to it and to consumer's to boycott them. Ultimately they will then lose custom. I love organisation's like UK Uncut.
  • Shooter M.
    Why should anyone boycott an organisation that structures itself to minimise its tax liability? Pay the taxman no more than you have to.
  • Meh
    Why be angry at the companies? The politicians make the laws.
  • fra
    I believe tax should be paid where income is earned regardless of where that company is based. Therefore a non-British company trading in Britain should pay tax on all the income it earns here. Replacing VAT and Corporation tax with a 'turnover' tax would make this simpler and close many of the avoidance loopholes.
  • Sicknote
    I am very proud of the fact that I only pay 4.2% tax in Malta for own company - and I fully comply with all UK tax laws as well. Happy Christmas everyone, mine is especially nice because I wasn't arsefucked by the UK tax this system for the past 3 years.
  • jt
    The way I understand Starbucks gets to say it makes no profit in the UK is that it has all its UK shops buy their coffee from its Netherlands Coffee roasting subsidiary, which in turn buys its coffee from its Swiss coffee buying subsidiary. Of course, corporation tax is very low in Switzerland because Switzerland makes its money holding everyone's dodgy money, so obviously the Swiss Starbucks subsidiary charges the Dutch subsidiary through the nose for coffee, putting all the profit in the virtually tax less Swiss side of the business. Meanwhile the UK subsidiary is paying through the nose for the Dutch roasted coffee and not making a profit. Overall, Starbucks is making a fat profit out of UK consumers, but can honestly say to HRMC that they are not making a profit in the UK, while telling their investors that the UK market is very profitable.
  • Mike
    JT - I can't be arsed to Google and check this but I believe they buy the coffee from one the Scandinavian countries (at a mark up) and pay royalties to a Dutch company on each sale (4% sticks in my head) for using the Starbucks name and processes. I could be taking shit tho...
  • Mike
    I could be talking shit as well lol
  • Rob
    I imagine all these "look at me I'm dead great at not paying tax" characters use NONE of the services provided by state taxation EVER as well ... yeah, didn't think so. Pay your fair share, or effectively be parasites - and I bet you avoid paying for your round in the pub as well ... [email protected]
  • David
    It may not be ethical but what exactly do you expect, companies to throw money away when they don't have to pay it? It'd be a failure to fulfil the directors duties to do anything else really. The burden should be on the government to close tax loopholes if we want to see the companies taxed, otherwise it's just good business sense.
  • Gabriella
    Starbuck's got what they deserved they are suffering a major boycott as a result. Google and Amazon are harder but it is cheaper to get instore than online if you bother to get out and look. Don't use Google, use Yahoo or another site.

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