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.

Photo: Getty
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Jeremy Corbyn sat down on train he claimed was full, Virgin says

The train company has pushed back against a viral video starring the Labour leader, in which he sat on the floor.

Seats were available on the train where Jeremy Corbyn was filmed sitting on the floor, Virgin Trains has said.

On 16 August, a freelance film-maker who has been following the Labour leader released a video which showed Corbyn talking about the problems of overcrowded trains.

“This is a problem that many passengers face every day, commuters and long-distance travellers. Today this train is completely ram-packed,” he said. Is it fair that I should upgrade my ticket whilst others who might not be able to afford such a luxury should have to sit on the floor? It’s their money I would be spending after all.”

Commentators quickly pointed out that he would not have been able to claim for a first-class upgrade, as expenses rules only permit standard-class travel. Also, campaign expenses cannot be claimed back from the taxpayer. 

Today, Virgin Trains released footage of the Labour leader walking past empty unreserved seats to film his video, which took half an hour, before walking back to take another unreserved seat.

"CCTV footage taken from the train on August 11 shows Mr Corbyn and his team walked past empty, unreserved seats in coach H before walking through the rest of the train to the far end, where his team sat on the floor and started filming.

"The same footage then shows Mr Corbyn returning to coach H and taking a seat there, with the help of the onboard crew, around 45 minutes into the journey and over two hours before the train reached Newcastle.

"Mr Corbyn’s team carried out their filming around 30 minutes into the journey. There were also additional empty seats on the train (the 11am departure from King’s Cross) which appear from CCTV to have been reserved but not taken, so they were also available for other passengers to sit on."

A Virgin spokesperson commented: “We have to take issue with the idea that Mr Corbyn wasn’t able to be seated on the service, as this clearly wasn’t the case.

A spokesman for the Corbyn campaign told BuzzFeed News that the footage was a “lie”, and that Corbyn had given up his seat for a woman to take his place, and that “other people” had also sat in the aisles.

Owen Smith, Corbyn's leadership rival, tried a joke:

But a passenger on the train supported Corbyn's version of events.

Both Virgin Trains and the Corbyn campaign have been contacted for further comment.

UPDATE 17:07

A spokesperson for the Jeremy for Labour campaign commented:

“When Jeremy boarded the train he was unable to find unreserved seats, so he sat with other passengers in the corridor who were also unable to find a seat. 

"Later in the journey, seats became available after a family were upgraded to first class, and Jeremy and the team he was travelling with were offered the seats by a very helpful member of staff.

"Passengers across Britain will have been in similar situations on overcrowded, expensive trains. That is why our policy to bring the trains back into public ownership, as part of a plan to rebuild and transform Britain, is so popular with passengers and rail workers.”

A few testimonies from passengers who had their photos taken with Corbyn on the floor can be found here