Every time you compare taxation to revenue, an accountant kills a kitten

So stop doing it.

Earlier this week, Margaret Hodge, the chair of the Public Accounts Committee (PAC), wrote an editorial on tax avoidance, in which she pointed out that:

In 2012 Amazon paid just £2.4m of UK corporation tax on UK sales of £4.2bn – less than the £2.5m it received in government grants.

That's just not a valid comparison. Corporation tax is paid on the profits a company makes, not on the amount of revenue it takes in. That's because otherwise, a company with a small turnover but massive profits would pay barely any tax, while a company with massive turnover but a tiny mark-up would pay a huge amount — which would drive the latter company out of business. By taxing profits, we only take money companies can afford to pay, minimising the deadweight loss of taxation.

It's actually the same when it comes to people. It might not feel it, because it's tempting to view income tax as a tax on your "revenue", but technically its a tax on your profits. You can see this most clearly in the tax treatment of self-employed people, who are allowed to deduct the costs of business from their income tax. But it's also why, if your workplace allows you to claim expenses, you don't pay tax on them. Again, they're revenue (the money ends up in your account, after all), but not profit.

The real problem on a personal level is that few workplaces do, in fact, provide everything you need to do your job directly, or let you expense them. So, for instance, if your employer pays for your commute, you are very lucky indeed; most people pay for their petrol, bikes, or season tickets out of their post-tax income. But that's a problem with employers, not the tax system (just as it is in the depressing story in today's Guardian of employers failing to account for transportation time in zero-hour contracts, leading to people driving 50 miles a day for shifts as short as 15 minutes).

So for a company like Amazon, which has a business strategy which involves making as little profit as possible and even making a worldwide loss last year, comparing the tax it paid to the revenue it took in is utterly, utterly misleading.

The problem the PAC has is that companies don't tend to report profit on a country-by-country basis. That's because it's pretty hard to work out; if you spend $10bn on R&D in the USA, and made 20 per cent of your sales in the UK, should $2bn of the R&D cost be subtracted from UK revenue? What if the R&D was mostly spent on widget A, while the UK sales came from widget B? But what if widget B was largely based on offshoots from discoveries made while creating widget A?

It all gets complicated, fast. And in fact, it's exactly those sort of calculations which got Apple in trouble last month; the company attributed a large amount of its R&D budget to its Irish office, and got attacked for it.

Country-by-country reporting of profits could – and probably should – be mandated, which would at least let Margaret Hodge quote the right comparison to the amount of tax companies pay. But even then, the debate will just step one degree up the chain, to whether the reporting fairly distributes profits. The problem, at heart, is that tax avoidance is like pornography: we know it when we see it, but it studiously avoids any set definition.

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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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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