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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How to think about the EU result if you voted Remain

A belief in democracy means accepting the crowd is wiser than you are as an individual. 

I voted Remain, I feel sick about this result and its implications for what’s to come. But I’m a believer in democracy. This post is about how to reconcile those two things (it’s a bit unstructured because I’m working it out as I go, and I’m not sure I agree with all of it).

Democracy isn’t just fairer than other systems of governance, it’s smarter. It leads to better decisions and better outcomes, on average and over the long run, than countries that are run by autocrats or councils of wise men with jobs for life. It is simply the best way we have yet devised of solving complex problems involving many people. On that topic, if you’re not averse to some rather dense and technical prose, read this post or seek out this book. But the central argument is that democracy is the best way of harnessing ‘cognitive diversity’ — bringing to bear many different perspectives on a problem, each of which are very partial in themselves, but add up to something more than any one wise person.

I don’t think you can truly be a believer in democracy unless you accept that the people, collectively, are smarter than you are. That’s hard. It’s easy to say you believe in the popular will, right up until the popular will does something REALLY STUPID. The hard thing is not just to ‘accept the result’ but to accept that the majority who voted for that result know or understand something better than you. But they do. You are just one person, after all, and try as you might to expand your perspective with reading (and some try harder than others) you can’t see everything. So if a vote goes against you, you need to reflect on the possibility you got it wrong in some way. If I look at the results of past general elections and referendums, for instance, I now see they were all pretty much the right calls, including those where I voted the other way.

One way to think about the vote is that it has forced a slightly more equitable distribution of anxiety and alienation upon the country. After Thursday, I feel more insecure about my future, and that of my family. I also feel like a foreigner in my own country — that there’s this whole massive swathe of people out there who don’t think like me at all and probably don’t like me. I feel like a big decision about my life has been imposed on me by nameless people out there. But of course, this is exactly how many of those very people have been feeling for years, and at a much higher level of intensity. Democracy forces us to try on each other’s clothes. I could have carried on quite happily ignoring the unhappiness of much of the country but I can’t ignore this.

I’m seeing a lot of people on Twitter and in the press bemoaning how ill-informed people were, talking about a ‘post-factual democracy’. Well, maybe, though I think that requires further investigation - democracy has always been a dirty dishonest business. But surely the great thing about Thursday that so many people voted — including many, many people who might have felt disenfranchised from a system that hasn’t been serving them well. I’m not sure you’re truly a democrat if you don’t take at least a tiny bit of delight in seeing people so far from the centres of power tipping the polity upside down and giving it a shake. Would it have been better or worse for the country if Remain had won because only informed middle-class people voted? It might have felt better for people like me, it might actually have been better, economically, for everyone. But it would have indicated a deeper rot in our democracy than do the problems with our national information environment (which I accept are real).

I’m not quite saying ‘the people are always right’ — at least, I don’t think it was wrong to vote to stay in the EU. I still believe we should have Remained and I’m worried about what we’ve got ourselves into by getting out. But I am saying they may have been right to use this opportunity — the only one they were given — to send an unignorable signal to the powers-that-be that things aren’t working. You might say general elections are the place for that, but our particular system isn’t suited to change things on which there is a broad consensus between the two main parties.

Ian Leslie is a writer, author of CURIOUS: The Desire to Know and Why Your Future Depends On It, and writer/presenter of BBC R4's Before They Were Famous.