By Derek Draper
Yesterday we noted with interest the front page of the Guardian, which shone the light on the scale of corporate tax avoidance in the UK, and launched the Guardian's new series on tax avoidance. Vince Cable followed up this piece today on Comment is Free.
The obvious implication of this practise is that the treasury loses out; which means that the bill is footed instead by the ordinary taxpayer.
Bearing this in mind, we decided to contact the Taxpayers' Alliance to see what they thought about this. We received the following quote from Matthew Elliott, the Chief Executive:
"Far too many companies are being driven abroad by this country's punitive and complex tax system. As a result, our economy and our public finances are losing out. The Government should be doing all it can to bring business back, and the best way to do this would be to lower tax rates and make the system much simpler. We can't expect companies to bring investment and job opportunities to Britain if the only thing they get in return is excessive bureaucracy and high tax rates. Lower taxes would tempt business to Britain, and help ordinary families to pay the bills at the same time."
We didn't think that this answered the question adequately. What we put to them regarded the current corporate tax avoidance that the Guardian is covering this week. In other words, leaving aside their mantra of lower taxes and cuts in public services, what do they think about massive companies avoiding tax in the meantime?
We called them and asked them to actually answer the question. What we received was a repeat of the same statement above, over and over again. It seems to us that the TPA wants individual taxpayers to pick up the slack for the avoidance behavior of these huge enterprises. They repeatedly tried to take us off the subject of corporate tax avoidance, and back onto tax levels overall. This, of course, has absolutely nothing to do with whether companies avoid tax, and what the TPA's view is of those.
They went on to back the practice of legal tax avoidance because they see tax as too high... a necessary implication of this is that someone else has to fit the bill.
When we said that we were going to post exposing this, they sent us the following e-mail:
"Derek,
As I made very clear in our phone conversation just now that is not my position, never has been and never will be. To say so is a lie and a total misrepresentation of my position and the position of the TaxPayers' Alliance , as you well know....
Mark (Wallace)"
This was our reply:
"Mark,
You just have to explain where in this logical chain we have got it wrong:
If government spending stays the same and tax revenue stays the same (I understand you would prefer they don't but they are going to, at least for now) and companies engage in the tax avoidance schemes outlined in the Guardian, corporate tax levels would decrease and so the burden on individuals would have to rise? So, do you condemn such avoidance schemes or not? My reading of what you said is that far from that, you make excuses for, and encourage them to do so. Therefore you have a stance which would lead to individual taxpayers paying more tax. What is mistaken about any of this? Finally, as I pointed out earlier, those individual taxpayers have a right to know: Do any of these corporate tax avoiders fund the Taxpayers' Alliance? Yes or no and, if yes, which ones please?
Yours,
Derek Draper"
When they respond we will let you know. In the meantime, perhaps they should change their name to the "Corporate Tax Avoiders' Alliance"?
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Most odd, arse over elbow thinking. Why aren't you attacking the government, for allowing this?
An increase of 10 per cent in National Insurance contributions to raise money for NHS spending.
Council tax has gone up by at least 70 per cent since Labour came to power.
Mr Brown has also refused to raise income tax thresholds in line with increasing earnings leaving 1.5 million more people into the higher tax rate since 1997. Over 2.8 million people now pay 40% tax.
These are phenomenal increases.
But do we now live in a country with a health system with no waiting lists, more bobbies on the beat and more effective teachers / social workers / civil servants due to their gilt-edged pensions and pay in line with inflation?
The answer from New Labour is yes, of course. Everything is sweetness and light.
Even our politicians are all honest and looking out for the man in the street instead of looking out for themselves, and all this because there is so much money from indirect taxes in the government's coffers.
Well sadly for them, I do not think the public share such a simplistic view. There is no justification for the wealthy to avoid paying tax.
But then the concept of why this group was set up is to moan about all taxation, yet they still use the very services that tax pays for. All this shows is how weak their arguments are.
There is little point to their organisation except at least we now know the types of people who join it. I wonder how many big company bosses they have on their membership.
http://www.taxpayersalliance.com/campaign/2009/02/a-response-to-derek-draper.html
In a nutshell, socialists are imaginative in finding ways to spend taxes, lousy at wealth creation.
Also, as posted many times elsewhere, the Guardian is in no position to criticize others for tax avoidance.
"In a nutshell, socialists are imaginative in finding ways to spend taxes, lousy at wealth creation."
Seeing as we have just had 11 consecutive years of growth in the UK when no other UK government in history ever come close to such a good record. Don't you think you should have a more balanced view before making such a remark.
Don't flatter yourselves. A rising tide lifts all boats.
Now that the tide has gone out, everybody can see Gordon Brown has been swimming naked, many 'out of business’ signs springing up. Gordon Brown thinks he can just inflate his way out of it and print money, or blame America.
Historically, the UK has done well, and will continue to do well long term in spite of and not because of, Gordon Brown's perceived managerial brilliance.
However you try to ignore it Andrew, Brown created a stable country that people wanted to invest in, which created jobs and growth.
This attitude the right keep putting out is simply not credible. You can’t dismiss the prosperity Gordon help create, to do so is just an attempt to avoid praising Labour for doing a good job.
The UK in 1997 was only just coming out of a 3rd home grown recession from 1979. Recessions related to a failure to invest in people. Most of the 80's and 90's were dominated by recession created by a right wing ideology that put the market before everything.
There was hardly any growth in the UK for those years, yet since 1997 right up to just 7 months ago the UK had no recessions and had year on year growth.
That level of management in the economy did not just happen and Gordon deserves credit.
If the Tories were in charge now they to would be in recession as this is a global event unlike their poor handling of the economy in past years.
Just to consolidate my point, just how many of our illustrious cabinet have any experience in industry?
In what ways are they better placed to deal with the current crisis?
Messrs Brown, Darling, Miliband? Nothing.
Jack Straw? A former NUS rabble-rouser, who's never had a proper job.
"Jackboots" Jacqui Smith? Nope.
John Hutton? Ah! He was once a postie and Marxist union official.
Hilary Benn, Douglas Alexander, Harriet Harman QC, James Purnell, Geoff Hoon, Ed Balls....
Who cares about any real-world experience? It's only the country they're running.
Isn't it time there was a full expose on who funds the TPA, and the links they have with the Conservative Party?
There is plenty of profitable business taking place in the UK, but where UK tax is avoided. Over elesewhere, Guido showed that even Guardian Media Group avoids UK tax. Tax avoidance costs us money. But it also costs the tax avoider money. Schemes cost money to set up; usually tax avoidance in the UK involves tax payment elsewhere. Tax payment is therefore a price-driven market. If you bring down tax rates, you increase the tax market share. In simple terms, you get to tax revenue that you previously didn't get to tax, because paying tax in the UK becomes cheaper than avoiding paying tax. So your corporate tax revenue actually goes up.
Indeed, if you extend the logic, at a certain point, paying tax in the UK becomes cheaper than avoiding tax elsewhere; then the market for your tax regime extends even further, and your tax revenue rises even further.
It seems to me that it is inescapable that by applying sensible, well thought out corporate tax cuts, you can increase the national corporate tax revenue. Yes, Derek, increase, not decrease.
My final thought is that Derek, along with everyone else reading this, knows perfectly well that what I have written is true. Derek, an arch propagandist, knows that the only way he can combat this logic is to misrepresent it. So, Derek, if the only way you can promote Labour over other views is to misrepresent the other views, then what does that say about Labour? To be gentle, the answer to that is "quite a lot, but none of it good".
Two points though. 1. Corporation tax - which Mr D seems to be going on about - is only one form of tax which companies pay. In particular companies pay VAT and employers' NI contributions (both when you think about it, taxes on jobs). VAT was until the other month a 17.5% tax on all a firm's income except VATable income - whether the firm was making a profit or not. Business's also generate the income on which their employees' income tax is paid and the dividends against which Mr Brown also levies income tax. 2. Corporation Tax is paid on profits before the cost of new investment - to which it is a disincentive - and before dividends - thus reducing the ability of business to attract savers to invest.
There are real issues as to whether corporate profit taxes are the best way for business to contribute to government spending needs - not least the fact that business profits are far more volatile and corporation tax revenues far less predictable than incomes and spending and income and spending taxes. It isn't a "Tory" question to ask if it isn't more effective to tax individuals' income, spending and wealth rather than businesses.
http://www.taxpayersalliance.com/campaign/2009/02/a-response-to-derek-draper.html
Taxes are a cost to business that are ultimately passed on to individuals and, strange as this may seem to the public sector, businesses will always seek to reduce costs. To expect companies in a competitive market economy to voluntarily forego cost reductions out of some sort of "moral obligation" to "pay their fair share" is fantastically naive and the sort of stuff my 6 year old son comes out with.
I suspect this is more about trying to spin a new narrative that the dire state of the public finances are in fact due to nasty (= Tory) business fat cats trying to avoid paying for schools and hospitals whilst "hard working families" toil away to plug the gap. To try and counter the increasingly compelling other narrative that it is this Government who set the tax regime, took the tax in the good years and absolve themselves of any blame in the bad.
Businesses are obligated to their share-holders to maximise their returns, and they always have, and always will, avoid taxation where they can. Good government need not be concerned by this, good government ensures that they operate an economy where business can thrive, where taxes are fair and where good governance doesn't lead to a boom and bust economy. It doesn't take long to remember that this was achieved by John Major's government.
There is real anger and concern at the vast sums of money wasted by national government and local councils, and Labour would be better concerning itself with that than launching attack after attack on business.
Julian White.
I'm a corporate tax avoider and proud of it.
I run a company taking British Engineers and placing them in high paying jobs in Germany, Denmark, Switzerland, Scandinavia and Holland (as instructed by Mandelson)
They're minted. They get €90K+ a year instead of £50K (the pound is now worth nothing, thanks Gordon), 30 days+ holiday and can't wait to leave this sceptered Isle (and crime, high taxes and stupid rules behind) for pastures new. Where pensions, wages, social justice and standards of living are so much higher than Britistan.
I invoice in Euros (phew) and do my banking in Lichtenstein. My Swiss holding company pays 17% tax.
Keep it coming.
I'm loving it.
(PS If anyone wants a job anywhere else than the UK, contact me. Form an orderly queue now, no shoving)
I would have a lot more sympathy for the "tax avoidance is bad" line if this government hadn't gone £18 billion over budget on their various IT schemes recently, or indeed if they weren't planning to spend a similar amount putting the whole country on a fingerprint register.
You going to print this comment or is any mention of the government's ID card scheme completely verboten despite being a manifesto commitment?
Firstly it is important to establish that tax avoidance is perfectly legal and only works within current legislation. Tax evasion is illegal.
2 Points
Firstly:
Given that cost management is crucial to any business. Maximum tax avoidance is the moral duty of every company, why would anyone position themselves so they had to pay more tax. Staff and shareholders would be appalled. It is every boards duty to minimise costs. Market forces dictate that if you don’t then the competition will; their goods and services will then be cheaper and your firm will loose business and profit.
Secondly:
Companies don’t pay tax, they just pass it on. When you boil it down to the raw economics; a group of directors and investors set out to start a business and make a profit, one that is commensurate with the risk and the market place that they enter. (I mean Nett profit here).
If they cant make a fair profit for the risk, then the investment and the talent move else where. Taxation, while only fair, inhibits this process as it is an extra cost.
All tax is paid by the end user one way or the other. Any cost that is imposed i.e. minimum wage (I agree with it by the way) then the company simply increases charges in line with the increased costs. The customer always pays and that increased cost stops with the end user, the consumer.
The fault is with various governments and the current legislation. Or more relevantly its with the current disparity between different countries, company registration and levels of taxation and loop holes in taxation regulation. Close the loop holes and prevent the problem.
Legislation has to be fair but most importantly the playing field has to be level.
You need more business people on the team guys. You have too many lawyers and career politicians.
Rather than increasing the tax burden on individuals, could the government not consider reducing government spending in line with how much money they had? Or is that completely out of the question?
"Companies are, of course, not individuals but legal entities. Any corporate tax is ultimately passed on somewhere else - in reduced dividends or wages or in higher prices."
The economic burden of taxes upon companies already lies elsewhere. The tax is, in the end, paid by some combination of the workers, customers and investors.
So the question "Who would pay if the companies didn't?" is ridiculous, because the companies already don't pay.
You’re absolutely right that companies pass any tax onto the customer, but nobody’s advocating abolishing Corporation Tax. In most western tax systems the burden of taxation is linked directly to economic activity, individuals and companies. Governments on the other hand are elected and accountable to individuals, not companies.
When Diageo is paying 2% taxation on its posted profits then it begs the question; why are consumers of alcoholic beverage more worthy of the avoided tax then the taxpayer in general?
I do. For the very sensible reason that everyone seems to think that it taxes the returns to capital when it actually does no such thing. It taxes the returns to labour. So it doesn't do what it says on the tin.
Abolish the corporation tax and smply tax capital income in exactly the same way that any other income is taxed.
Politicians on the mainstream centre (Labour or Tory) tend to support the hypothesis painted by Derek in that tax avoidance results in a higher tax burden for individuals and is therefore problematic for both the centre-left and centre-right as it gets in the way of lower taxes or increased public spending.
What’s interesting about the Tax-Payers Alliance is that they fail to take a position that would be on the side of individual Tax-Payers, or indeed small businesses.
Tax avoidance is an old story of where we all pay tax except for the few who can afford not too.
This Government has deliberately complicated the tax code to try and alter corporate behaviour - through tax breaks for green energy, relocating to certain areas, spending on RND and hundreds of other things. To complain when companies use these tax breaks seems bizarre - if they aren't meant to be used by anyone, why introduce them?
There's a consistent effort to elide tax avoidance and tax evasion. One is illegal, and the other isn't. Run an experiment - anyone who works as a freelance, or as self-employed. Do they keep receipts for their business epenses? If so that's tax avoidance. Is that supposed to be immoral?