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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Where Labour has no chance, hold your nose and vote Lib Dem

May's gamble, MacKenzie's obsession and Wisden obituaries - Peter Wilby's First Thoughts.

In 2007 Gordon Brown allowed rumours to circulate that he would call an early general election for the spring of 2008. When he failed to do so, he was considered a coward and a ditherer and never recovered. Theresa May has tried a different strategy. After firmly denying that she would call an early election and killing off speculation about one, she suddenly announced an election after all. Will this work better for her than the opposite worked for Brown?

The Prime Minister risks being seen as a liar and an opportunist. Her demand for “unity” at Westminster is alarming, because it suggests that there is no role for opposition parties on the most important issue of the day. If Labour and the Lib Dems are smart enough to co-operate sufficiently to rally the country against what looks like an attempt to instal an authoritarian, right-wing Tory regime, May, even if she wins the election, could find herself weakened, not strengthened. I never thought I would write this but, in constituencies where Labour has no chance, its supporters should hold their noses and vote Lib Dem.

Taken for granted

I wonder if May, before she took her decision, looked at the precedents of prime ministers who called unnecessary elections when they already had comfortable parliamentary majorities. In 1974, after three and a half years in office, Edward Heath, with a Tory majority of 30, called a “Who runs Britain?” election during a prolonged dispute with the miners. He lost. In 1923, Stanley Baldwin, a new Tory leader sitting on a majority of 75 obtained by his predecessor just a year earlier, called an election because he wished to introduce tariffs, an issue strikingly similar to the one raised by Brexit. He also lost. The lesson, I think (and hope), is that prime ministers take the electorate for granted at their peril.

China’s long game

Commentators compare the crisis ­involving North Korea and the US with the Cuban missile crisis of 1962. It doesn’t feel that way to me. For several days that year, nuclear war seemed, to my 17-year-old mind, all but inevitable. I went to the cinema one afternoon and felt surprise when I emerged three hours later to find the world – or, at least, the city of Leicester – going about its business as normal. Two nuclear powers were in direct confrontation. The US threatened to invade communist Cuba to remove Soviet missiles and blockaded the island to prevent deliveries of more weapons. Soviet ships sailed towards the US navy. It wasn’t easy to imagine a compromise, or who would broker one. Nobody doubted that the two sides’ weapons would work. The Soviet Union had carried out nearly 200 nuclear tests. North Korea has claimed just five.

For all the talk of intercontinental missiles, North Korea at present isn’t a credible threat to anybody except possibly its neighbours, and certainly not to the US or Britain. It is in no sense a geopolitical or economic rival to the US. Donald Trump, who, like everybody else, finds the Middle East infernally complicated, is looking for an easy, short-term victory. The Chinese will probably arrange one for him. With 3,500 years of civilisation behind them, they are accustomed to playing the long game.

Mussel pains

Whenever I read Kelvin MacKenzie’s columns in the Sun, I find him complaining about the size of mussels served by the Loch Fyne chain, a subject on which he happens to be right, though one wonders why he doesn’t just order something else. Otherwise, he writes badly and unfunnily, often aiming abuse at vulnerable people such as benefit claimants. It’s a new departure, however, to insult someone because they were on the receiving end of what MacKenzie calls “a nasty right-hander”, apparently unprovoked, in a Liverpool nightclub. He called the victim, the Everton and England footballer Ross Barkley, who has a Nigerian grandfather, “one of our dimmest footballers” and likened him to “a gorilla at the zoo”.
The paper has suspended MacKenzie, a former Sun editor, and Merseyside Police is investigating him for racism, though he claims he didn’t know of Barkley’s ancestry.

Several commentators express amazement that Sun editors allowed such tripe to be published. It was not, I think, a mistake. Britain has no equivalent of America’s successful alt-right Breitbart website, disruptively flinging insults at all and sundry and testing the boundaries of what it calls “political correctness”, because our alt right is already established in the Sun, Express and Mail. To defend their position, those papers will continue to be as nasty as it takes.

Over and out

Easter is the time to read the cricket annual Wisden and, as usual, I turn first to the obituaries. Unlike newspaper obituaries, they record failures as well as successes – those who managed just a few undistinguished performances in first-class cricket and, most poignantly, some who promised much but died early. We learn of a 22-year-old Indian who, during demonstrations against the alleged molestation of a schoolgirl, was shot dead by police and whose grieving mother (invoking the name of one of India’s greatest batsmen) cried, “Bring my Gavaskar back!” In England, two young men drowned, having played one first-class match each, and a 22-year-old Sussex fast bowler, described as “roguish” and “enormously popular”, fell off a roof while celebrating New Year with friends in Scotland. In South Africa, a young batsman was among five municipal employees killed when their truck crashed; the local mayor fled the funeral as his workmates “chanted menacingly” about unpaid wages.

Among the better-known deaths is that of Martin Crowe, probably New Zealand’s best batsman. In a Test match, he once got out on 299 and reckoned the near-miss contributed to the cancer that killed him at 53. “It tore at me like a vulture pecking dead flesh,” he said. Cricket can do that kind of thing to you. 

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 20 April 2017 issue of the New Statesman, May's gamble

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