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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Will Euroscepticism prove an unbeatable advantage in the Conservative leadership race?

Conservative members who are eager for Brexit are still searching for a heavyweight champion - and they could yet inherit the earth.

Put your money on Liam Fox? The former Defence Secretary has been given a boost by the news that ConservativeHome’s rolling survey of party members preferences for the next Conservative leader. Jeremy Wilson at BusinessInsider and James Millar at the Sunday Post have both tipped Fox for the top job.

Are they right? The expectation among Conservative MPs is that there will be several candidates from the Tory right: Dominic Raab, Priti Patel and potentially Owen Paterson could all be candidates, while Boris Johnson, in the words of one: “rides both horses – is he the candidate of the left, of the right, or both?”

MPs will whittle down the field of candidates to a top two, who will then be voted on by the membership.  (As Graham Brady, chair of the 1922 Committee, notes in his interview with my colleague George Eaton, Conservative MPs could choose to offer a wider field if they so desired, but would be unlikely to surrender more power to party activists.)

The extreme likelihood is that that contest will be between two candidates: George Osborne and not-George Osborne.  “We know that the Chancellor has a bye to the final,” one minister observes, “But once you’re in the final – well, then it’s anyone’s game.”

Could “not-George Osborne” be Liam Fox? Well, the difficulty, as one MP observes, is we don’t really know what the Conservative leadership election is about:

“We don’t even know what the questions are to which the candidates will attempt to present themselves as the answer. Usually, that question would be: who can win us the election? But now that Labour have Corbyn, that question is taken care of.”

So what’s the question that MPs will be asking? We simply don’t know – and it may be that they come to a very different conclusion to their members, just as in 2001, when Ken Clarke won among MPs – before being defeated in a landslide by Conservative activists.

Much depends not only on the outcome of the European referendum, but also on its conduct. If the contest is particularly bruising, it may be that MPs are looking for a candidate who will “heal and settle”, in the words of one. That would disadvantage Fox, who will likely be a combative presence in the European referendum, and could benefit Boris Johnson, who, as one MP put it, “rides both horses” and will be less intimately linked with the referendum and its outcome than Osborne.

But equally, it could be that Euroscepticism proves to be a less powerful card than we currently expect. Ignoring the not inconsiderable organisational hurdles that have to be cleared to beat Theresa May, Boris Johnson, and potentially any or all of the “next generation” of Sajid Javid, Nicky Morgan or Stephen Crabb, we simply don’t know what the reaction of Conservative members to the In-Out referendum will be.

Firstly, there’s a non-trivial possibility that Leave could still win, despite its difficulties at centre-forward. The incentive to “reward” an Outer will be smaller. But if Britain votes to Remain – and if that vote is seen by Conservative members as the result of “dirty tricks” by the Conservative leadership – it could be that many members, far from sticking around for another three to four years to vote in the election, simply decide to leave. The last time that Cameron went against the dearest instincts of many of his party grassroots, the result was victory for the Prime Minister – and an activist base that, as the result of defections to Ukip and cancelled membership fees, is more socially liberal and more sympathetic to Cameron than it was before. Don’t forget that, for all the worry about “entryism” in the Labour leadership, it was “exitism” – of Labour members who supported David Miliband and liked the New Labour years  - that shifted that party towards Jeremy Corbyn.

It could be that if – as Brady predicts in this week’s New Statesman – the final two is an Inner and an Outer, the Eurosceptic candidate finds that the members who might have backed them are simply no longer around.

It comes back to the biggest known unknown in the race to succeed Cameron: Conservative members. For the first time in British political history, a Prime Minister will be chosen, not by MPs with an electoral mandate of their own or by voters at a general election but by an entirelyself-selecting group: party members. And we simply don't know enough about what they feel - yet. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.