Google, and why we need to make tax a bit simpler

A case for the Fair Tax Mark.

So, it’s another episode in the endless soap of the Public Accounts Committee’s (PAC) pursuit of what it sees as corporate tax dodgers and, last week, of Google in particular.

For its part, Google is sticking resolutely to the line that it is doing nothing illegal in organising its affairs to take advantage of lower rates of corporation tax rates elsewhere. HMRC is, rightly, refusing to comment on the details of any particular case, while at the same time launching a stout defence of its record of investigating such large corporate “customers”. And once again, the Big Four are in the spotlight for their part in advising clients how to reduce tax bills. The view within the profession is that they no longer engage in the worst sort of egregious avoidance schemes, having already recognised the changing mood music in the country. 

Overlaying all this scrutiny of one company’s affairs in one country is the broader international picture and the imminent arrival of the leaders of the G8, ostensibly to discuss changes to the global tax system above all else. The potential difficulties in agreeing changes to the international tax system have already been highlighted with Bermuda refusing to play ball on an information-sharing deal for Britain’s Overseas Territories and Crown Dependencies, and Canada’s prime minister, Stephen Harper, refusing to agree to a proposed new deal on global tax. France has also refused to agree to a proposed EU-US free trade agreement unless it gets certain cultural exemptions. I suppose that’s in the nature of international discussion and diplomacy.

David Cameron likes to talk about the UK being in “a global race”, while his chancellor is keen to promote the UK as a low-tax destination for businesses. The government’s Corporation Tax Road Map sets out the ambition to use low taxes as a means of attracting inward investment. But this global tax race is inevitably a race to the bottom. Germany has already started to question the appropriateness of the UK’s patent box legislation, which offers tax breaks for companies investing in research and development activity in the UK.

A government that seeks to attract investment through lower taxes can’t attack corporations using low tax jurisdictions elsewhere with any sort of credibility. That is one reason that all the political criticism aimed at Google has thus far come from the PAC and the opposition. Indeed, David Cameron was happy to host Google’s chairman Eric Schmidt at a Downing Street meeting of his Business Advisory Group last month.

After a new round of lobbying scandals, trust in the political system (still only recovering from the expenses scandal) is low, while scepticism about the unhealthily close relationship between politicians and business leaders is sky high. Every move is watched and analysed by a media itself only recovering from its own scandals. It is an atmosphere in which speculation and conspiracy theories thrive.

So people can claim that Google gets “let off” taxes because it’s done a deal with David Cameron or speculate that HMRC lets big business get away without paying its fair share because its senior civil servants get well-paid jobs with the big accountancy firms when they leave. As with all such conspiracies there is little truth in most of this idle tittle-tattle. But reputation is not just about what people, corporations and politicians actually do. At least, and maybe more, important is what they are perceived to be doing.

Into this arena when, however much it frustrates practitioners, the tax debate has moved away from being a black and white legal issue to being a much less clear cut reputational risk issue, it was interesting to see the launch of the Fair Tax Mark. This is a far more effective and practical attempt to do something that was floated in this column in January.

This is a good manifestation of the idea of Nudge economics, in which positive reinforcement for good behaviours is shown to have a greater effect than punishment of undesirable behaviours. This was a theory former number 10 adviser Steve “Big Society” Hilton pushed David Cameron towards early on. So the PM should be keen to embrace the Fair Tax Mark. Perhaps unsurprisingly, PAC chairman Margaret Hodge has welcomed the move.

It’s hard to find many people who think the UK tax system is too simple. Tax in the UK (as it is in most countries) is a complicated matter, but it can be simplified. While that process of actually simplifying the tax code is an extremely slow process, initiatives such as the Fair Tax Mark, which compares taxes actually paid against those that could have been paid and assesses the methods use to avoid tax, present the non-tax-literate public an immediately accessible way to judge a company’s tax behaviour. It will be interesting what take-up the initiative gets with policymakers, accountants, and most crucial of all, with the public.

So, it’s another week and another episode in the endless soap of the Public Accounts Committee’s (PAC) pursuit of what it sees as corporate tax dodgers and, this week, of Google in particular.

 

For its part, Google is sticking resolutely to the line that it is doing nothing illegal in organising its affairs to take advantage of lower rates of corporation tax rates elsewhere. HMRC is, rightly, refusing to comment on the details of any particular case, while at the same time launching a stout defence of its record of investigating such large corporate “customers”. And once again, the Big Four are in the spotlight for their part in advising clients how to reduce tax bills. The view within the profession is that they no longer engage in the worst sort of egregious avoidance schemes, having already recognised the changing mood music in the country. 

Overlaying all this scrutiny of one company’s affairs in one country is the broader international picture and the imminent arrival of the leaders of the G8, ostensibly to discuss changes to the global tax system above all else. The potential difficulties in agreeing changes to the international tax system have already been highlighted with Bermuda refusing to play ball on an information-sharing deal for Britain’s Overseas Territories and Crown Dependencies, and Canada’s prime minister, Stephen Harper, refusing to agree to a proposed new deal on global tax. France has also refused to agree to a proposed EU-US free trade agreement unless it gets certain cultural exemptions. I suppose that’s in the nature of international discussion and diplomacy.

 

Reputation is not just about what people, corporations and politicians actually do. At least, and maybe more, important is what they are perceived to be doing

David Cameron likes to talk about the UK being in “a global race”, while his chancellor is keen to promote the UK as a low-tax destination for businesses. The government’s Corporation Tax Road Map sets out the ambition to use low taxes as a means of attracting inward investment. But this global tax race is inevitably a race to the bottom. Germany has already started to question the appropriateness of the UK’s patent box legislation, which offers tax breaks for companies investing in research and development activity in the UK.

A government that seeks to attract investment through lower taxes can’t attack corporations using low tax jurisdictions elsewhere with any sort of credibility. That is one reason that all the political criticism aimed at Google has thus far come from the PAC and the opposition. Indeed, David Cameron was happy to host Google’s chairman Eric Schmidt at a Downing Street meeting of his Business Advisory Group last month.

After a new round of lobbying scandals, trust in the political system (still only recovering from the expenses scandal) is low, while scepticism about the unhealthily close relationship between politicians and business leaders is sky high. Every move is watched and analysed by a media itself only recovering from its own scandals. It is an atmosphere in which speculation and conspiracy theories thrive.

So people can claim that Google gets “let off” taxes because it’s done a deal with David Cameron or speculate that HMRC lets big business get away without paying its fair share because its senior civil servants get well-paid jobs with the big accountancy firms when they leave. As with all such conspiracies there is little truth in most of this idle tittle-tattle. But reputation is not just about what people, corporations and politicians actually do. At least, and maybe more, important is what they are perceived to be doing.

Into this arena when, however much it frustrates practitioners, the tax debate has moved away from being a black and white legal issue to being a much less clear cut reputational risk issue, it was interesting to see the launch of the Fair Tax Mark. This is a far more effective and practical attempt to do something that was floated in this column in January.

This is a good manifestation of the idea of Nudge economics, in which positive reinforcement for good behaviours is shown to have a greater effect than punishment of undesirable behaviours. This was a theory former number 10 adviser Steve “Big Society” Hilton pushed David Cameron towards early on. So the PM should be keen to embrace the Fair Tax Mark. Perhaps unsurprisingly, PAC chairman Margaret Hodge has welcomed the move.

It’s hard to find many people who think the UK tax system is too simple. Tax in the UK (as it is in most countries) is a complicated matter, but it can be simplified. While that process of actually simplifying the tax code is an extremely slow process, initiatives such as the Fair Tax Mark, which compares taxes actually paid against those that could have been paid and assesses the methods use to avoid tax, present the non-tax-literate public an immediately accessible way to judge a company’s tax behaviour. It will be interesting what take-up the initiative gets with policymakers, accountants, and most crucial of all, with the public.

- See more at: http://economia.icaew.com/opinion/june2013/editor-view-time-for-the-tax-...

Overlaying all this scrutiny of one company’s affairs in one country is the broader international picture and the imminent arrival of the leaders of the G8, ostensibly to discuss changes to the global tax system above all else. The potential difficulties in agreeing changes to the international tax system have already been highlighted with Bermuda refusing to play ball on an information-sharing deal for Britain’s Overseas Territories and Crown Dependencies, and Canada’s prime minister, Stephen Harper, refusing to agree to a proposed new deal on global tax. France has also refused to agree to a proposed EU-US free trade agreement unless it gets certain cultural exemptions. I suppose that’s in the nature of international discussion and diplomacy.

 

Reputation is not just about what people, corporations and politicians actually do. At least, and maybe more, important is what they are perceived to be doing

David Cameron likes to talk about the UK being in “a global race”, while his chancellor is keen to promote the UK as a low-tax destination for businesses. The government’s Corporation Tax Road Map sets out the ambition to use low taxes as a means of attracting inward investment. But this global tax race is inevitably a race to the bottom. Germany has already started to question the appropriateness of the UK’s patent box legislation, which offers tax breaks for companies investing in research and development activity in the UK.

A government that seeks to attract investment through lower taxes can’t attack corporations using low tax jurisdictions elsewhere with any sort of credibility. That is one reason that all the political criticism aimed at Google has thus far come from the PAC and the opposition. Indeed, David Cameron was happy to host Google’s chairman Eric Schmidt at a Downing Street meeting of his Business Advisory Group last month.

After a new round of lobbying scandals, trust in the political system (still only recovering from the expenses scandal) is low, while scepticism about the unhealthily close relationship between politicians and business leaders is sky high. Every move is watched and analysed by a media itself only recovering from its own scandals. It is an atmosphere in which speculation and conspiracy theories thrive.

So people can claim that Google gets “let off” taxes because it’s done a deal with David Cameron or speculate that HMRC lets big business get away without paying its fair share because its senior civil servants get well-paid jobs with the big accountancy firms when they leave. As with all such conspiracies there is little truth in most of this idle tittle-tattle. But reputation is not just about what people, corporations and politicians actually do. At least, and maybe more, important is what they are perceived to be doing.

Into this arena when, however much it frustrates practitioners, the tax debate has moved away from being a black and white legal issue to being a much less clear cut reputational risk issue, it was interesting to see the launch of the Fair Tax Mark. This is a far more effective and practical attempt to do something that was floated in this column in January.

This is a good manifestation of the idea of Nudge economics, in which positive reinforcement for good behaviours is shown to have a greater effect than punishment of undesirable behaviours. This was a theory former number 10 adviser Steve “Big Society” Hilton pushed David Cameron towards early on. So the PM should be keen to embrace the Fair Tax Mark. Perhaps unsurprisingly, PAC chairman Margaret Hodge has welcomed the move.

It’s hard to find many people who think the UK tax system is too simple. Tax in the UK (as it is in most countries) is a complicated matter, but it can be simplified. While that process of actually simplifying the tax code is an extremely slow process, initiatives such as the Fair Tax Mark, which compares taxes actually paid against those that could have been paid and assesses the methods use to avoid tax, present the non-tax-literate public an immediately accessible way to judge a company’s tax behaviour. It will be interesting what take-up the initiative gets with policymakers, accountants, and most crucial of all, with the public.

- See more at: http://economia.icaew.com/opinion/june2013/editor-view-time-for-the-tax-...

So, it’s another week and another episode in the endless soap of the Public Accounts Committee’s (PAC) pursuit of what it sees as corporate tax dodgers and, this week, of Google in particular.

 

For its part, Google is sticking resolutely to the line that it is doing nothing illegal in organising its affairs to take advantage of lower rates of corporation tax rates elsewhere. HMRC is, rightly, refusing to comment on the details of any particular case, while at the same time launching a stout defence of its record of investigating such large corporate “customers”. And once again, the Big Four are in the spotlight for their part in advising clients how to reduce tax bills. The view within the profession is that they no longer engage in the worst sort of egregious avoidance schemes, having already recognised the changing mood music in the country. 

Overlaying all this scrutiny of one company’s affairs in one country is the broader international picture and the imminent arrival of the leaders of the G8, ostensibly to discuss changes to the global tax system above all else. The potential difficulties in agreeing changes to the international tax system have already been highlighted with Bermuda refusing to play ball on an information-sharing deal for Britain’s Overseas Territories and Crown Dependencies, and Canada’s prime minister, Stephen Harper, refusing to agree to a proposed new deal on global tax. France has also refused to agree to a proposed EU-US free trade agreement unless it gets certain cultural exemptions. I suppose that’s in the nature of international discussion and diplomacy.

 

Reputation is not just about what people, corporations and politicians actually do. At least, and maybe more, important is what they are perceived to be doing

David Cameron likes to talk about the UK being in “a global race”, while his chancellor is keen to promote the UK as a low-tax destination for businesses. The government’s Corporation Tax Road Map sets out the ambition to use low taxes as a means of attracting inward investment. But this global tax race is inevitably a race to the bottom. Germany has already started to question the appropriateness of the UK’s patent box legislation, which offers tax breaks for companies investing in research and development activity in the UK.

A government that seeks to attract investment through lower taxes can’t attack corporations using low tax jurisdictions elsewhere with any sort of credibility. That is one reason that all the political criticism aimed at Google has thus far come from the PAC and the opposition. Indeed, David Cameron was happy to host Google’s chairman Eric Schmidt at a Downing Street meeting of his Business Advisory Group last month.

After a new round of lobbying scandals, trust in the political system (still only recovering from the expenses scandal) is low, while scepticism about the unhealthily close relationship between politicians and business leaders is sky high. Every move is watched and analysed by a media itself only recovering from its own scandals. It is an atmosphere in which speculation and conspiracy theories thrive.

So people can claim that Google gets “let off” taxes because it’s done a deal with David Cameron or speculate that HMRC lets big business get away without paying its fair share because its senior civil servants get well-paid jobs with the big accountancy firms when they leave. As with all such conspiracies there is little truth in most of this idle tittle-tattle. But reputation is not just about what people, corporations and politicians actually do. At least, and maybe more, important is what they are perceived to be doing.

Into this arena when, however much it frustrates practitioners, the tax debate has moved away from being a black and white legal issue to being a much less clear cut reputational risk issue, it was interesting to see the launch of the Fair Tax Mark. This is a far more effective and practical attempt to do something that was floated in this column in January.

This is a good manifestation of the idea of Nudge economics, in which positive reinforcement for good behaviours is shown to have a greater effect than punishment of undesirable behaviours. This was a theory former number 10 adviser Steve “Big Society” Hilton pushed David Cameron towards early on. So the PM should be keen to embrace the Fair Tax Mark. Perhaps unsurprisingly, PAC chairman Margaret Hodge has welcomed the move.

It’s hard to find many people who think the UK tax system is too simple. Tax in the UK (as it is in most countries) is a complicated matter, but it can be simplified. While that process of actually simplifying the tax code is an extremely slow process, initiatives such as the Fair Tax Mark, which compares taxes actually paid against those that could have been paid and assesses the methods use to avoid tax, present the non-tax-literate public an immediately accessible way to judge a company’s tax behaviour. It will be interesting what take-up the initiative gets with policymakers, accountants, and most crucial of all, with the public.

- See more at: http://economia.icaew.com/opinion/june2013/editor-view-time-for-the-tax-...

This article first appeared on economia

Photograph: Getty Images

Richard Cree is the Editor of Economia.

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.