Don't tax Amazon. Tax Amazon's shareholders

Corporations dodge tax. So go for their owners instead.

Tax avoidance is a problem which stubbornly refuses to be fixed. Even just defining our terms is problematic, with nearly every definition wide-ranging enough to cover all avoidance also including things which nobody finds objectionable.

And even if you could define it well, there's the fact that tax avoidance is, by its nature, legal. While some avoidance is truly, obviously, taking advantage of sloppy phrasing in statutes and judicial rulings, most of it exists in the grey area where it would be impossible to "tighten up" the law without also removing those deductions or exemptions which were supposed to be there in the first place. (For an example of this in action, look no further than the pasty tax debacle.)

The worst tax avoidance is undoubtedly in the corporate sector. While there are terrible examples of avoidance amongst individuals, like the New Yorker's examination of hedge-fund manager Julian Robertson's tax affairs, they are always hampered by the fact that actually offshoring personal income – the most effective form of avoidance, and the hardest to fight with the law – is tricky. People, after all, have a physical location. Some may become the infamous "non-doms", but to do that you have to spend half the year outside the country. That isn't something which can be achieved by just hiring a canny accountant.

While moralising can convince the worst corporate offenders to pay their fair share – as Starbucks finally agreed to do – it can't work every time. Some companies don't care about their image, others manage to hide their avoidance.

And so we come back to patching up the holes in the system. But with offshoring, some holes seem nearly unpatchable. For all the stirling work of campaigners like UK Uncut and Tax Research UK, the world is still no closer to agreeing on the best way to deal with multinationals which engage in creative "tax planning".

But there's one possibility: forget about them.

The reason why involves looking at the concept of tax incidence. If you accept that the only question of tax that matters is which people pay it, then corporation tax becomes a complicated issue. As a tax alters the bottom line of a company, one of two things will happen: either it will pass the costs on, or it won't. If it doesn't, then the actual people hit by the tax are the shareholders of the company, who see its profitability decline. (This is largely the intended outcome of campaigns against tax dodging.)

But if it does past the costs on, then either its customers and employees must bear the brunt, in the form of increased costs or decreased wages, or other businesses (such as suppliers or contractors) do, and the whole equation starts again.

(It is important to point out that the argument that all costs must be levied on a person at some point is not without its critics. After all, businesses have savings, assets, property and rights; who is to say that they can't be counted as people for the purpose of taxation? And the assumption at the heart of the argument is one which must be taken as faith. It's just as easy to argue, using the same logic, that the costs of all personal taxation must be borne at some point by businesses.)

Tax incidence varies business-to-business and over time. In the early 70s, when it was starting up in Washington state, Starbucks' tax incidence was almost certainly mostly upon its shareholders. Labour was expensive, coffee was a niche product, and investors in a small start-up were probably in for the long haul. Now that Starbucks has access to vast pools of low-wage labour and customers willing to pay up to $7 for a cup, it is far more likely that they will bear the brunt of much excess tax. (Although, of course, as John Elledge rightly points out, even then, it's not certain; and if there's anything we've learned from Lisa Pollack's investigation into the matter at the FT, it's that Starbucks' publicity machine holds a lot of sway within the company)

But here's the thing: if we want to tax just the shareholders of a company, we already have a way to do it. We tax dividends, and we tax capital gains. Increasing those taxes hits the people we hope would take the brunt of corporation taxes anyway.

So here's my proposal: scrap corporation tax, and whack up those two to make up the revenue gap.

There would be two big transfers inherent in this change: the first would be from shareholders in companies which pay little tax to shareholders in companies which pay a lot of tax. Since that's just another way to say "cracking down on tax avoidance", it need not upset us too much.

The other is more uncertain. By and large, international companies have international ownership. Those based in Britain with the majority of their shareholders overseas would be better off; those based overseas with the majority of their shareholders in Britain would be worse off. If the logic of the Conservatives, who have already cut corporation tax significantly, holds, we can expect that latter group to move headquarters here to take advantage of the rates; and if it doesn't, then we can expect the shareholders to sell up and buy into British companies.

There's a reason CGT and dividend taxes are so low, of course, which is to encourage investment. But since we would expect pre-tax shareholder income to go up, investment ought to still be compelling. It would just be targeted more effectively at companies which could actually make a profit, rather than those which could only make a profit if they were avoiding tax which their competitors were not.

If we can stop the biggest corporations avoiding tax, we ought to. But if trying to tax aggregations of people which can twist across country borders with ease is permanently difficult, perhaps we ought to stop trying it, and do something better instead.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

How Jim Murphy's mistake cost Labour - and helped make Ruth Davidson

Scottish Labour's former leader's great mistake was to run away from Labour's Scottish referendum, not on it.

The strange revival of Conservative Scotland? Another poll from north of the border, this time from the Times and YouGov, shows the Tories experiencing a revival in Scotland, up to 28 per cent of the vote, enough to net seven extra seats from the SNP.

Adding to the Nationalists’ misery, according to the same poll, they would lose East Dunbartonshire to the Liberal Democrats, reducing their strength in the Commons to a still-formidable 47 seats.

It could be worse than the polls suggest, however. In the elections to the Scottish Parliament last year, parties which backed a No vote in the referendum did better in the first-past-the-post seats than the polls would have suggested – thanks to tactical voting by No voters, who backed whichever party had the best chance of beating the SNP.

The strategic insight of Ruth Davidson, the Conservative leader in Scotland, was to to recast her party as the loudest defender of the Union between Scotland and the rest of the United Kingdom. She has absorbed large chunks of that vote from the Liberal Democrats and Labour, but, paradoxically, at the Holyrood elections at least, the “Unionist coalition” she assembled helped those parties even though it cost the vote share.

The big thing to watch is not just where the parties of the Union make gains, but where they successfully form strong second-places against whoever the strongest pro-Union party is.

Davidson’s popularity and eye for a good photo opportunity – which came first is an interesting question – mean that the natural benefactor in most places will likely be the Tories.

But it could have been very different. The first politician to hit successfully upon the “last defender of the Union” routine was Ian Murray, the last Labour MP in Scotland, who squeezed both the  Liberal Democrat and Conservative vote in his seat of Edinburgh South.

His then-leader in Scotland, Jim Murphy, had a different idea. He fought the election in 2015 to the SNP’s left, with the slogan of “Whether you’re Yes, or No, the Tories have got to go”.  There were a couple of problems with that approach, as one  former staffer put it: “Firstly, the SNP weren’t going to put the Tories in, and everyone knew it. Secondly, no-one but us wanted to move on [from the referendum]”.

Then again under different leadership, this time under Kezia Dugdale, Scottish Labour once again fought a campaign explicitly to the left of the SNP, promising to increase taxation to blunt cuts devolved from Westminster, and an agnostic position on the referendum. Dugdale said she’d be open to voting to leave the United Kingdom if Britain left the European Union. Senior Scottish Labour figures flirted with the idea that the party might be neutral in a forthcoming election. Once again, the party tried to move on – but no-one else wanted to move on.

How different things might be if instead of running away from their referendum campaign, Jim Murphy had run towards it in 2015. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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