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.

Getty
Show Hide image

Who will win in Copeland? The Labour heartland hangs in the balance

The knife-edge by-election could end 82 years of Labour rule on the West Cumbrian coast.

Fine, relentless drizzle shrouds Whitehaven, a harbour town exposed on the outer edge of Copeland, West Cumbria. It is the most populous part of the coastal north-western constituency, which takes in everything from this old fishing port to Sellafield nuclear power station to England’s tallest mountain Scafell Pike. Sprawling and remote, it protrudes from the heart of the Lake District out into the Irish Sea.

Billy, a 72-year-old Whitehaven resident, is out for a morning walk along the marina with two friends, his woolly-hatted head held high against the whipping rain. He worked down the pit at the Haig Colliery for 27 years until it closed, and now works at Sellafield on contract, where he’s been since the age of 42.

“Whatever happens, a change has got to happen,” he says, hands stuffed into the pockets of his thick fleece. “If I do vote, the Bootle lass talks well for the Tories. They’re the favourites. If me mam heard me saying this now, she’d have battered us!” he laughs. “We were a big Labour family. But their vote has gone. Jeremy Corbyn – what is he?”

The Conservatives have their sights on traditional Labour voters like Billy, who have been returning Labour MPs for 82 years, to make the first government gain in a by-election since 1982.

Copeland has become increasingly marginal, held with just 2,564 votes by former frontbencher Jamie Reed, who resigned from Parliament last December to take a job at the nuclear plant. He triggered a by-election now regarded by all sides as too close to call. “I wouldn’t put a penny on it,” is how one local activist sums up the mood.

There are 10,000 people employed at the Sellafield site, and 21,000 jobs are promised for nearby Moorside – a project to build Europe’s largest nuclear power station now thrown into doubt, with Japanese company Toshiba likely to pull out.

Tories believe Jeremy Corbyn’s stance on nuclear power (he limply conceded it could be part of the “energy mix” recently, but his long prevarication betrayed his scepticism) and opposition to Trident, which is hosted in the neighbouring constituency of Barrow-in-Furness, could put off local employees who usually stick to Labour.

But it’s not that simple. The constituency may rely on nuclear for jobs, but I found a notable lack of affection for the industry. While most see the employment benefits, there is less enthusiasm for Sellafield being part of their home’s identity – particularly in Whitehaven, which houses the majority of employees in the constituency. Also, unions representing Sellafield workers have been in a dispute for months with ministers over pension cut plans.

“I worked at Sellafield for 30 years, and I’m against it,” growls Fred, Billy’s friend, a retiree of the same age who also used to work at the colliery. “Can you see nuclear power as safer than coal?” he asks, wild wiry eyebrows raised. “I’m a pit man; there was just nowhere else to work [when the colliery closed]. The pension scheme used to be second-to-none, now they’re trying to cut it, changing the terms.”

Derek Bone, a 51-year-old who has been a storeman at the plant for 15 years, is equally unconvinced. I meet him walking his dog along the seafront. “This county, Cumbria, Copeland, has always been a nuclear area – whether we like it or don’t,” he says, over the impatient barks of his Yorkshire terrier Milo. “But people say it’s only to do with Copeland. It ain’t. It employs a lot of people in the UK, outside the county – then they’re spending the money back where they’re from, not here.”

Such views might be just enough of a buffer against the damage caused by Corbyn’s nuclear reluctance. But the problem for Labour is that neither Fred nor Derek are particularly bothered about the result. While awareness of the by-election is high, many tell me that they won’t be voting this time. “Jeremy Corbyn says he’s against it [nuclear], now he’s not, and he could change his mind – I don’t believe any of them,” says Malcolm Campbell, a 55-year-old lorry driver who is part of the nuclear supply chain.

Also worrying for Labour is the deprivation in Copeland. Everyone I speak to complains about poor infrastructure, shoddy roads, derelict buildings, and lack of investment. This could punish the party that has been in power locally for so long.

The Tory candidate Trudy Harrison, who grew up in the coastal village of Seascale and now lives in Bootle, at the southern end of the constituency, claims local Labour rule has been ineffective. “We’re isolated, we’re remote, we’ve been forgotten and ignored by Labour for far too long,” she says.

I meet her in the town of Millom, at the southern tip of the constituency – the opposite end to Whitehaven. It centres on a small market square dominated by a smart 19th-century town hall with a mint-green domed clock tower. This is good Tory door-knocking territory; Millom has a Conservative-led town council.

While Harrison’s Labour opponents are relying on their legacy vote to turn out, Harrison is hoping that the same people think it’s time for a change, and can be combined with the existing Tory vote in places like Millom. “After 82 years of Labour rule, this is a huge ask,” she admits.

Another challenge for Harrison is the threat to services at Whitehaven’s West Cumberland Hospital. It has been proposed for a downgrade, which would mean those seeking urgent care – including children, stroke sufferers, and those in need of major trauma treatment and maternity care beyond midwifery – would have to travel the 40-mile journey to Carlisle on the notoriously bad A595 road.

Labour is blaming this on Conservative cuts to health spending, and indeed, Theresa May dodged calls to rescue the hospital in her campaign visit last week. “The Lady’s Not For Talking,” was one local paper front page. It also helps that Labour’s candidate, Gillian Troughton, is a St John Ambulance driver, who has driven the dangerous journey on a blue light.

“Seeing the health service having services taken away in the name of centralisation and saving money is just heart-breaking,” she tells me. “People are genuinely frightened . . . If we have a Tory MP, that essentially gives them the green light to say ‘this is OK’.”

But Harrison believes she would be best-placed to reverse the hospital downgrade. “[I] will have the ear of government,” she insists. “I stand the very best chance of making sure we save those essential services.”

Voters are concerned about the hospital, but divided on the idea that a Tory MP would have more power to save it.

“What the Conservatives are doing with the hospitals is disgusting,” a 44-year-old carer from Copeland’s second most-populated town of Egremont tells me. Her partner, Shaun Grant, who works as a labourer, agrees. “You have to travel to Carlisle – it could take one hour 40 minutes; the road is unpredictable.” They will both vote Labour.

Ken, a Conservative voter, counters: “People will lose their lives over it – we need someone in the circle, who can influence the government, to change it. I think the government would reward us for voting Tory.”

Fog engulfs the jagged coastline and rolling hills of Copeland as the sun begins to set on Sunday evening. But for most voters and campaigners here, the dense grey horizon is far clearer than what the result will be after going to the polls on Thursday.

Anoosh Chakelian is senior writer at the New Statesman.